The law of supply as the price of a good rises the

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THE LAW OF SUPPLY As the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus. Simply put, the price of a good and the quantity supplied of the good are directly related, ceteris paribus. Quantity supplied is the number of units of a good sellers are willing and able to produce and offer to sell at a particular price. P↑ ----> Q s Ceteris paribus P↓ ----> Q s Exceptions: 1) The Law of Supply holds for production of most goods. It does not hold when there is no time to produce more units of a good. E.g. If a theater is sold out for a play, even if ticket prices were to increase, there would be no additional seats in the theater. There is no time to produce more seats. The supply curve in this case is therefore fixed at the # of seats in the theater. 2) The Law of Supply also does not hold for goods the can not be produced over any period of time. E.g. since the violinmaker Antonio Stradivani died in 1737, a rise in the price of Stradivarius violins does not affect the #’s if Stradivarius violins supplied.

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The Supply Schedule The numerical tabulation of the quantity supplied of a good at different prices. P Q s 5 10 4 7 3 5 2 4 1 1 The Supply Curve Is a graphical representation of a supply schedule. FACTORS THAT CAN CAUSE THE SUPPLY CURVE TO SHIFT 1) Price of the good itself 2) Cost of production Cp↑ S↓ Cp↓ S↑ 3) Taxes T↑ Cp↑ S↓ T↓ Cp↓ S↑ 4) Subsidies Su↑ Cp↓ S↑ Su↓ Cp↑ S↓ Q s P S
5) Weather W↑ S↑ W↓ S↓ 6) # of seller #s↑ S ↑ #s↓ S↓ 7) Technology Tc↑ Cp↓ S↑ Tc↓ Cp↑ S↓ The body of skills and knowledge relevant to the use of inputs or resources in production. An advance in technology refers to the ability to generate more output with a fixed amount of resource, this reducing per-unit production costs. WHY MOST SUPPLY CURVES ARE UPWARD SLOPING Most supply curves are upward sloping. The fundamental reason for this involves the Law of Diminishing marginal returns. Here, it suffices to say that an upward sloping supply curve reflects the fact that, under certain conditions, a higher price is an incentive to producers to produce more of a good. This incentive comes in the form of higher profits. THE INDIVIDUAL vs. MARKET SUPPLY CURVE An Individual Supply Curve represents the price-quantity combinations for a single seller. The Market Supply Curve represents the price-quantity combinations for all sellers of a particular good. A CHANGE IN QUANTITY SUPPLIED vs. A CHANGE IN SUPPLY A change in Q s This refers to a movement along a supply curve. If the price of a good changes but everything else remains the same, there is a movement along the same supply curve.

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A change in S This refers to a shift in the supply curve. A change in the supply for a product is brought about by a change in all the other factors affecting supply with the exception of the price of the good itself.
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