Chapter Outline - Ch.3 - Supply and Market Equilibrium - 9-8-07 (2)

Chapter Outline - Ch.3 - Supply and Market Equilibrium - 9-8-07 (2)

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Microeconomics – Ch. 3 (Supply and Equilibrium) – 9/8/07 Whereas demand refers to the behavior of consumers, supply refers to the behavior of firms. Supply is a relationship between two variables: (1) the price of a particular good and (2) the quantity of the good firms are willing to sell at that price, all other things being the same. Price – the first variable (price of a particular good) Quantity supplied – The quantity of the good firms are willing to sell at that price, all other things being the same. As the price increases, the quantity supplied increases, and that as the price decreases, the quantity supplied decreases. The relationship between price and quantity supplied is a supply schedule . This relationship is an example of the law of supply. The law of supply says that the higher the price, the higher the quantity supplied, and the lower the price, the lower the quantity supplied. (The tendency for the quantity supplied of a good in a market to increase as its price rises). The law of supply says that the price and the quantity supplied are positively related (as one increases, so does the other). THE SUPPLY CURVE The supply curve - The resulting curve showing all the combinations of prices and quantities supplied. The curve slopes upward because there is a greater incentive to produce a product if it can be sold at a higher and higher price. If producing more of a product increases the costs of producing each product, perhaps because you must pay workers a higher wage for overtime, the higher price will give you the incentive to incur these costs The incentive to sell the product decreases as the price falls SHIFTS IN SUPPLY The supply curve is drawn on the assumption that all other things are equal, except for the price of the good. If any one of these other things changes, then the supply curve shifts
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This note was uploaded on 04/15/2008 for the course ECON 100 taught by Professor Stephaniemartin during the Fall '07 term at Allegheny.

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Chapter Outline - Ch.3 - Supply and Market Equilibrium - 9-8-07 (2)

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