Supply Curve Slope

11 Key excerpts on "Supply Curve Slope"

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  eBook - ePub

  Health Economics For Nurses

  Intro Guide

  • Stephen Morris(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  In a similar fashion to the discussion of demand above, we will first concentrate on the single major influence determining supply: the price of the good itself. All other things being equal, a greater quantity will be supplied at a higher price. In other words, the quantity that a producer will supply is positively associated with the price of the good.

  The quantity of a good supplied rises when the price of the good rises, and the quantity supplied falls when the price falls. This result has an intuitive appeal for two reasons, which apply first to producers currently supplying the good in question, and secondly to new producers who wish to enter the market and start supplying the good:

  1.  Producers currently supplying the good in the market As price increases, the prospects for making profits are greater and therefore there is a greater incentive for current producers in the market to produce more and offer it for sale. 2.  Producers who wish to start supplying the good in the market

  As price increases, producers who could not profitably supply goods at a lower price would find it possible to do so at the higher price. Therefore, as price increases so more producers will enter the market and the quantity supplied will increase.

  Therefore, as price increases so the quantity supplied will increase for these two reasons. The relationship between price and quantity supplied may be demonstrated graphically, by constructing a supply curve (see Figure 2.4 ).

  The supply curve shows the quantity supplied at every price. This curve is upward sloping from left to right and it therefore has a positive slope. At a relatively low price such as P3 only a relatively low quantity of the good is supplied, Q3 . If price increases, say to P4 , then the quantity supplied also increases, to Q4 .

  In the case of the demand curve we were able to derive the downward slope using the theory of diminishing marginal utility, combined with the assumption of utility maximisation. Analogous assumptions may be used to explain the upward-sloping supply curve: increasing marginal cost and profit maximisation. To explain the effects of these concepts, we first need to examine the various costs of production.

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  Economics For Dummies

  Book + Chapter Quizzes Online

  • Sean Masaki Flynn(Author)
  • 2023(Publication Date)
  • For Dummies

    (Publisher)

  1 . This result makes good sense because if demand increases and buyers are willing to pay more for something, you would expect more of it to be supplied. Also, the price goes up from one equilibrium to the other because to get suppliers to supply more in a world of rising costs, you have to pay them more.

  However, a much more subtle thing to realize is that the slope of the supply curve interacts with the demand curve to determine how big the changes in price and quantity will be. Think of a vertical (perfectly inelastic) supply curve, such as the one in the left-hand graph of Figure 4-7 . For such a supply curve, any increase in demand increases only the price because the quantity can’t increase. On the other hand, if you’re dealing with a horizontal (perfectly elastic) supply curve, as in the right-hand graph of Figure 4-7 , a rightward shift in demand increases only the quantity because the price is fixed at P '.

  Neither demand nor supply is in complete control in a situation like Figure 4-11 . Their interaction jointly determines equilibrium prices and quantities and how they change if the demand curve or the supply curve shifts.

  Reacting to a decrease in supply

  If supply decreases and demand stays the same, the equilibrium price increases, but the equilibrium quantity decreases. Consider Figure 4-12 , where the supply curve shifts from

  S0

  to

  S1

  because of increased production costs. (As I discuss in the earlier section “Cost changes: Shifting the supply curve ,” this increase in costs can be considered to shift the supply curve either up or to the left. In Figure 4-12 , I’ve drawn a vertical arrow to indicate a vertical shift, but I could’ve just as correctly put in a left arrow to show a leftward shift.)

  The shift in supply causes the market equilibrium to adjust. The original equilibrium is at price

  P* 0

  and quantity

  Q* 0 ,

  which is the point where the demand curve D and the initial supply curve

  S0

  cross. When production costs increase, the supply curve shifts to

  S1

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  Principles of Economics and Management for Manufacturing Engineering

  • D.R. Kiran(Author)
  • 2022(Publication Date)
  • Butterworth-Heinemann

    (Publisher)

  Value in exchange, expressed in terms of money, is called the price. As seen in the previous section, the price is very much related to the value in exchange. When a quintal of rice is exchanged against money, the ratio of one quintal of rice with the money units is known as price. In actual life, all transactions are usually conducted in terms of money.

  5.5: Concepts of pricing

  While Chapter 11 discusses several costs involved and the methodology for fixing the price of a commodity price based on the cost of production, this section indicates some of the features and terminology used in understanding the combined effect of laws of demand and supply on the equilibrium price, from the economic theory point of view:

  1. 1.  The demand curve slopes downward to the right, indicating that, as price rises, a lower quantity will be demanded, and as price falls, a higher quantity will be demanded.
  2. 2.  The Supply Curve Slopes upward to the right showing that, as price rises, a larger quantity will be supplied and, as price falls, a lower quantity will be supplied.
  3. 3.  A change in price will only cause a movement along the demand and supply curves and will not cause either of these curves to shift.
  4. 4.  Among the economic variables that will shift the demand curve are changes in tastes, incomes, expectations, prices of other goods, and the number of buyers.
  5. 5.  Among the economic variables that will shift the supply curve are changes in costs, expectations, and the number of sellers.
  6. 6.  Changes in the equilibrium price and quantity will occur when the demand and/or supply curves shift. These changes can be summarized as follows:
     1. (i)  An increase in demand yields a price increase and a quantity increase.
     2. (ii)  A decrease in demand yields a price decrease and quantity decrease.
     3. (iii)  An increase in supply yields a price decrease and a quantity increase.
     4. (iv)  A decrease in supply yields a price increase and a quantity.

  5.6: Equilibrium price

  In the previous chapter, we saw how the laws of demand and supply have their impact on the pricing structure. Fig. 5.1 clarifies the combined effect of these two laws on the prices. As the price increases, the demand from the customer’s side would reduce, but the producers would be motivated to produce more and supply more to get higher income. In a competitive market, such a situation would stabilize the price and the supply would be same as the demand, as shown by X in Fig. 5.2

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  Economics and Free Markets

  A Reader

  • Howard Baetjer(Author)
  • 2017(Publication Date)
  • Cato Institute

    (Publisher)

  This arrangement we call a supply “curve.” Notice how it reflects the law of supply: at higher prices, more corn would be offered for sale. Almost never will a supply curve identify the supplier of each quantity of a good by name, as here; almost always, the supply curves we’ll consider represent too many suppliers to name in a smoothly upward-sloping line. We present supply this way as we introduce it to emphasize that every point on a supply curve always represents some particular person (or company) willing to accept some particular amount (or more, but not less) for an additional quantity of the good or service.

  The Information a Supply Curve Provides

  Similar to a demand curve, a supply curve gives us quantity information about costs and cost information about quantities. For example, what does the supply curve for corn in Figure 6.1 tell us about a seller cost of $6 per bushel? It tells us that in this market, 700 bushels can be offered at a cost of $6 per bushel or less. In other words, it tells us that at a price of $6 per bushel, the quantity supplied would be 700 bushels. At a seller cost of $5 or less, only 500 bushels can be produced, so at a price of $5 per bushel, only 500 would be supplied.

  To generalize, a supply curve tells us the quantity supplied at any given price or cost, the quantity that suppliers in that market would be willing and able to sell at that price.

  What does a supply curve tell us about any quantity that might be brought to market? It tells us the cost of doing so. For example, what is the cost of offering, say, the 800th bushel of corn in our imaginary market? Trace upward from 800 on the quantity axis until you reach the supply curve. You reach it at the $7 level. Hence, the cost of producing that 800th bushel—to Jonas, in the example—is $7’s worth of his land, time, and fertilizer. What’s the cost of producing the 1,000th bushel? It’s $9: the $9’s worth of Hiram’s time, fertilizer, irrigation, and land needed to produce it.

  Here’s a good time for a reminder about the meaning of cost. All costs are best understood as opportunity costs. The cost of producing that 1,000th bushel is the value of the most valuable good(s) that could have been produced instead, using the farmer’s time, fertilizer, irrigation, and land that he uses to produce that bushel of corn. To generalize, a supply curve tells us the marginal cost—the cost to its seller of providing each additional unit of the good for sale.

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  Price Theory

  • Milton Friedman(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

   5The Relationships Between Supply Curves and Cost Curves

  The Definition of a Supply Curve

  Consider a two-dimensional graph in which the quantity of a commodity per unit time is measured along the horizontal axis and price per unit of the commodity is measured along the vertical axis (Figure 5.1 ). Each point on this graph denotes a combination of a price and a quantity. For a specific group of suppliers (which may as a special case consist of a single firm), a specific commodity, and given conditions of supply (to be defined more explicitly below), some of these points will be attainable in the sense that the suppliers would be willing to supply the indicated quantity at the indicated price, whereas others will be unattainable in the sense that the suppliers would not be willing to supply the indicated quantity at the indicated price. The supply curve of the specific group for the specific commodity is the boundary line between those points that are and those that are not attainable under the given conditions of supply.

  For a full description, the supply curve must be accompanied by a specification of (a) the alternatives considered open to the suppliers and (b) which of the two areas into which the supply curve divides the space contains the attainable points.

  As an example of the meaning of (a), the supply curve will be one thing if the suppliers are considered as having the alternative of supplying either the indicated quantity at the indicated price or nothing at all; it will be quite different if they are considered as having the alternative of supplying either the indicated quantity or any smaller quantity at the indicated price. In general, we shall suppose the latter to be the alternative open to suppliers.

  FIGURE 5.1

  The relevance of (b) is exemplified in Figure 5.1 , in which the shaded areas designate the attainable points. The supply curve in Figure 5.1 (a) can be described in either of two ways: as showing the maximum quantity that would be supplied at a specified price or as showing the minimum price at which a specified quantity would be supplied. The supply curve in Figure 5.1 (b) can be described in only one of these ways: as showing the maximum quantity that would be supplied at a specified price. The supply curve in Figure 5.1 (c) shows only the minimum price at which a specified quantity would be supplied. The negatively sloped portion of a supply curve like that in Figure 5.1 (b) is frequently referred to as a “backward-bending” supply curve; a supply curve like that in Figure 5.1 (c) is referred to as a “forward-falling” supply curve. The segment of a supply curve in Figure 5.1

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  Contemporary Economics

  An Applications Approach

  • Robert Carbaugh(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)
• A market is a mechanism through which buyers and sellers communicate in order to trade goods and services. Through the price system, markets link potential buyers with potential sellers.
• Demand is a schedule that shows the amount of a good or service that buyers are willing and able to purchase at each possible price during a particular period. A demand curve is a graphical representation of the data comprised by a demand schedule. A movement along a demand curve, resulting from a change in price, is called a change in quantity demanded.
• According to the law of demand, price and quantity demanded are inversely related, assuming that all other factors affecting the quantity demanded remain the same. Economists explain the law of demand in terms of the substitution effect, the income effect, and the principle of diminishing marginal utility.
• A demand shifter is a variable that causes a shift in a demand curve. Among the most important demand shifters are consumer tastes, the number of buyers, consumer income, the prices of related goods, and expected future prices. When a demand shifter causes an increase in demand, the demand curve shifts to the right; a decrease in demand causes the demand curve to shift to the left.
• Supply is a schedule or curve showing the amounts of a good or service that firms or households are willing and able to sell at various prices during a particular period. The quantity supplied refers to a single point on a supply curve. Changes in quantity supplied are caused by changes in the price of the product.
• According to the law of supply, sellers are willing and able to make more of their product available at a higher price than a lower price, all other determinants of supply being constant. The tendency for the cost of additional output to increase explains the law of supply.
• A supply shifter is a variable that causes a shift in a supply curve. Among the major supply shifters are resource prices, technology, the prices of other goods, expected future prices, taxes and subsidies, and the number of suppliers. When a supply shifter results in an increase in supply, the supply curve shifts to the right; a decrease in supply shifts the supply curve to the left.