Principles of Economics- Mankiw (5th) 71

Principles of Economics- Mankiw (5th) 71 - CHAPTER 4 T H E...

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CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 75 SUPPLY We now turn to the other side of the market and examine the behavior of sellers. The quantity supplied of any good or service is the amount that sellers are willing and able to sell. Once again, to focus our thinking, let’s consider the market for ice cream and look at the factors that determine the quantity supplied. WHAT DETERMINES THE QUANTITY AN INDIVIDUAL SUPPLIES? Imagine that you are running Student Sweets, a company that produces and sells ice cream. What determines the quantity of ice cream you are willing to produce and offer for sale? Here are some possible answers. Price The price of ice cream is one determinant of the quantity supplied. When the price of ice cream is high, selling ice cream is profitable, and so the quantity supplied is large. As a seller of ice cream, you work long hours, buy many ice- cream machines, and hire many workers. By contrast, when the price of ice cream is low, your business is less profitable, and so you will produce less ice cream. At
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