Foundations: Supply, Demand, and Market Equilibrium

Notes

Supply, Price & Quantity Introduction to Supply Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period A supply curve is a graphical representation of the price and quantity supplied by producers If data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier The supply curve is sloping upward as there is a positive relationship between the price and quantity supplied (QS) Rational prot maximising producers would want to supply more as prices increase in order to maximise their prots The law of supply states that there is a positive (direct) relationship between quantity supplied and price, ceteris paribus When the price rises the QS rises When the price falls the QS falls Individual and Market Supply Market supply is the combination of all the individual supply for a good/service It is calculated by adding up the individual supply at each price level The Monthly Market Supply of Bread from 4 Bakeries in a Small town Bakery 1 Bakery 2 Bakery 3 Bakery 4 Market Supply 300 600 180 320 1400 loaves Individual and market supply can also be represented graphically...