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Class01_16 - Class Notes(cover part of Chapter 3 in the...

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01/16/2008 Class Notes (cover part of Chapter 3 in the textbook) Class Outline Supply Changes in Supply Market Equilibrium Supply Def. Supply The supply is the maximum quantity a seller is willing and able to put forth for sale at various prices during some period, other things unchanged . Q: How other things remaining the same, does the quantity supplied of a good change as its price changes? A: The law of supply provides the answer! Law of Supply Other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller the quantity supplied. Example : Assume the relationship between price (p) and quantity supplied (q s ) of croissants is linear. 2 7 1 7 2 2 s s q p p q = - = + 1
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Table 1. Supply Schedule for croissants q s p (in $) 0 0 0 3.5 1 4 3 5 5 6 Graphically: The supply curve reflects the marginal cost of producing a good. In our case, as the quantity of croissants supplied increases the marginal cost increases.
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