blanchard_ch03

Supply is illustrated by the supply curve and the

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Unformatted text preview: by the supply curve and the supply schedule. The term quantity supplied refers to a point on a supply curve—the quantity supplied at a particular price. Figure 3.4 shows the supply curve of energy bars. A supply curve shows the relationship between the quantity supplied of a good and its price when all other influences on producers’ planned sales remain the same. The supply curve is a graph of a supply schedule. The table in Fig. 3.4 sets out the supply schedule for energy bars. A supply schedule lists the quantities supplied at each price when all the other influences on producers’ planned sales remain the same. For example, if the price of a bar is 50¢, the quantity supplied is zero—in row A of the table. If the price of a bar is $1.00, the quantity supplied is 6 million energy bars a week—in row B. The other rows of the table show the quantities supplied at prices of $1.50, $2.00, and $2.50. To make a supply curve, we graph the quantity supplied on the x-axis and the price on the y-axis, just as in the case of the demand curve. The points on the supply curve labeled A through E correspond to the rows of the supply schedule. For example, point A on the graph shows a quantity supplied of zero at a price of 50¢ an energy bar. 9160335_CH03_p053-080.qxd 6/22/09 8:56 AM Page 61 Supply The Supply Curve Price (dollars per bar) FIGURE 3.4 3.00 Supply of energy bars 2.50 E 2.00 D 1.50 C 1.00 B 0.50 A 61 Minimum Supply Price The supply curve can be interpreted as a minimum-supply-price curve—a curve that shows the lowest price at which someone is willing to sell. This lowest price is the marginal cost. If a small quantity is produced, the lowest price at which someone is willing to sell one more unit is low. But as the quantity produced increases, the marginal cost of each additional unit rises, so the lowest price at which someone is willing to sell rises along the supply curve. In Fig. 3.4, if 15 million bars are produced each week, the lowest price at which someone is willing to sell the 15 millionth bar is $2.50. But if 10 millio...
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