Chapter 21.1 What is Supply?

An Introduction to Supply  Supply refers to the various quantities of a good or service that producers are willing to sell at all possible market prices. Supply can refer to the output of one producer or to the total output of all producers in the market.  Producers offer different quantities of a product depending on the price that buyers are willing to pay.

continued  Like quantity demanded, quantity supplied varies according to price, but in the opposite direction. As the price for a good rises, the quantity supplied rises and the quantity demanded falls. As the price falls, the quantity supplied falls and the quantity demanded rises.

continued  The law of supply holds that producers will normally offer more for sale at higher prices and less at lower prices. Higher prices mean higher profit for producers. Higher profits are an incentive to produce more.  A supply schedule is a table that shows the quantities producers are willing to supply at various prices. A supply schedule shown as a graph is a supply curve. In the graph, prices are listed on the vertical axis and quantities on the horizontal axis.

continued  Unlike a demand curve, a supply curve normally slopes upward. This reflects the fact that suppliers are generally willing to offer more of a product at a higher price and less at a lower price.

continued  Businesses provide goods and services hoping to make a profit. Profit is the money a business has left over after it covers its costs. Businesses try to sell at prices high enough to cover their costs with some profit left over. Profit is the primary goal for business owners in our economy.

continued  Producers can choose to use their profits to increase wages or hire new workers. They can invest it back into the business by purchasing new space or equipment. The owners can also keep the profit for themselves.

Graphing Market Supply  The market supply is the total of the supply schedules for all providers of the same good or service.  The market supply curve slopes upward, like individual supply curves do. This upward slope shows that all producers in the market would prefer to offer more of the product for sale at higher prices and less at lower prices.

continued  Price has the most influence on the quantity supplied. For example, you would probably be willing to supply more of your labor at a higher wage than at a low one.  Other factors also affect supply. If any factors change other than price, a change in supply will occur. That is, the entire curve will shift.