supply

supply - different quantities that firms are willing and able to produce at different prices (other things staying constant) 

• Demand has to do 
• with consumers (demanders) 
• Supply has to do with producers (suppliers) 

Law of Supply: there is a direct relationship between price and quantity supplied.

So

• price increases, supply increases 
• price decreases, supply decreases

Two reasons why
1. Price as signal 

• Prices act as a signal for producers 
• If a good has a high price, existing firms have an incentive to produce more. 
• High prices will bring other producers into the market   
• Profit = total revenue - total cost 

2. Ability to produce

• Marginal cost increases when output increases 
• higher prices make producers more able to increase quantity supplied. 

 

Supply curve: Graph showing the quantities of a good supplied at at various prices during a given time period. (Other things remaining constant)

Change in Supply vs. Change in Quantity Supplied 

Movement along the curve: a change in Q supplied

• only thing that can affect it is price
• price never shifts the curve, it moves along the curve

Movement of the curve: change of supply 

• one of the six shifters of supply (change in any non-price determinant of supply) 

• 1. Production costs, how much a good costs to be produced
• raw materials, labor, etc. 

• 2. The technology used in production, and/or technological advances

• 3. The price of related goods

• other goods the firm could produce

• 4. Firms' expectations about future prices

• 5. Number of suppliers

• 6. Taxes and subsidies 

about the graph:

• Increase in supply: curve shifts to the right 
• Decrease in supply: curve shifts to the left