Number of Buyers:■■An increase in the number of buyers will lead to an increase in the market demand for a good because there are more individual demand curves to horizontally sum.A demand curve is drawn with price on the vertical axis and quantity demanded on the horizontal axis while holding other things equal. Therefore, a change in the price of a good represents a movement along the demand curve while a change in income, prices of related goods, tastes, expectations, and the number of buyers causes a shift in the demand curve.SupplyThe behavior of sellers is captured by the concept of supply. The quantity supplied is the amount of a good that sellers are willing and able to sell. Although many things determine the quantity supplied of a good, the priceof the good is central. An increase in the price of a good makes production of the good more profitable. Therefore, the law of supply states that, other things equal, an increase in the price of a good increases the quantity supplied of the good, while a decrease in the price of a good reduces the quantity supplied of the good. The supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. The supply curve is a graph of this relationship with the price on the vertical axis and the quantity supplied on the horizontal axis. The supply curve is upward sloping due to the law of supply.Market supplyis the sum of the quantity supplied for each individual seller at each price. That is, the market supply curve is the horizontal sum of the individual supply curves. The market supply curve shows the total quantity supplied of a good at each price, while all other factors that affect how much producers wish to sell are held constant.Shifts in the Supply Curve ■■When producers change how much they wish to sell at each price, the supply curve shifts. If producers increase the quantity supplied at each price, the supply curve shifts right, which is called an increase in supply. Alternatively, if producers decrease the quantity supplied at each price, the supply curve shifts left, which is called a decrease in supply. The most important factors that shift supply curves are:Input Prices: ■■A decrease in the price of an input makes production more profitable and increases supply.Technology:■■An improvement in technology reduces costs, makes production more profitable, and increases supply.
CHAPTER 4THE MARKET FORCES OF SUPPLY AND DEMAND 33Expectations:■■Expectations about the future will affect the supply of a good today.Number of Sellers:■■An increase in the number of sellers will lead to an increase in the market supply for a good because there are more individual supply curves to horizontally sum.
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