Supply - Part 1

While demand looks at the consumer and their willingness and ability to purchase an item, supply looks at the producer. Supply is based on the voluntary decisions made by producers as to the amount of an item to offer for sale at any given price. Supply is defined as the amount of a product that would be offered at for sale at all possible prices that could prevail in the market.

The Law of Supply has a direct relationship between quantity and price, unlike the Law of Demand which has an inverse relationship. The Law of Supply states that the higher the price, the more supply will be offered and the lower the price, the less the amount of supply that will be offered. This should not be surprising, it is a simple matter of profit seeking.

When looking at supply, there are two tools we have to help describe supply. The first is the supply schedule. This is a T-chart that lists quantity supplied versus price. The second is the supply curve. This is a chart that plots the data from the supply chart with the price on the vertical axis and the quantity on the horizontal axis. All normal supply curves have an upward slope.

The Law of Supply explained

Case study illustrating supply

Objectives:

• Understand the difference between the supply schedule and the supply curve
• Explain how market supply curves are derived
• Specify the reasons for a change in supply

Homework: Read 5-2.