# Price and the supply curve

 Sana 03.02.2023 Hajmi 38.15 Kb. #1152808
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PRICE AND THE SUPPLY CURVE

 PRICE AND THE SUPPLY CURVE What Is a Supply Curve? The supply curve is a graphic representation of the correlation between the cost of a good or service and the quantity supplied for a given period. In a typical illustration, the price will appear on the left vertical axis, while the quantity supplied will appear on the horizontal axis. KEY TAKEAWAYS On most supply curves, as the price of a good increases, the quantity of supplies increases. Supply curves can often show if a commodity will experience a price increase or decrease based on demand, and vice versa. The supply curve is shallower (closer to horizontal) for products with more elastic supply and steeper (closer to vertical) for products with less elastic supply. How a Supply Curve Works The supply curve will move upward from left to right, which expresses the law of supply: As the price of a given commodity increases, the quantity supplied increases (all else being equal). Note that this formulation implies that price is the independent variable, and quantity the dependent variable. In most disciplines, the independent variable appears on the horizontal or x-axis, but economics is an exception to this rule. Image by Julie Bang © Investopedia 2019​ If a factor besides price or quantity changes, a new supply curve needs to be drawn. For example, say that some new soybean farmers enter the market, clearing forests and increasing the amount of land devoted to soybean cultivation. In this scenario, more soybeans will be produced even if the price remains the same, meaning that the supply curve itself shifts to the right (S2) in the graph below. In other words, supply will increase. Technology is a leading cause of supply curve shifts. Other factors can shift the supply curve as well, such as a change in the price of production. If a drought causes water prices to spike, the curve will shift to the left (S3). If the price of a substitute—from the supplier's perspective—such as corn increases, farmers will shift to growing that instead, and the supply of soybeans will decrease (S3). If a new technology, such as a pest-resistant seed, increases yields, the supply curve will shift right (S2). If the future price of soybeans is higher than the current price, the supply will temporarily shift to the left (S3), since producers have an incentive to wait to sell. Image by Julie Bang © Investopedia 2019 Supply Curve Example Should the price of soybeans rise, farmers will have an incentive to plant less corn and more soybeans, and the total quantity of soybeans on the market will increase.  The degree to which rising price translates into rising quantity is called supply elasticity or price elasticity of supply. If a 50% rise in soybean prices causes the number of soybeans produced to rise by 50%, the supply elasticity of soybeans is 1. On the other hand, if a 50% rise in soybean prices only increases the quantity supplied by 10 percent, the supply elasticity is 0.2. The supply curve is shallower (closer to horizontal) for products with more elastic supply and steeper (closer to vertical) for products with less elastic supply. Special Considerations The terminology surrounding supply can be confusing. "Quantity" or "quantity supplied" refers to the amount of the good or service, such as tons of soybeans, bushels of tomatoes, available hotel rooms, or hours of labor. In everyday usage, this might be called the "supply," but in economic theory, "supply" refers to the curve shown above, denoting the relationship between quantity supplied and price per unit. Other factors can also cause changes in the supply curve, such as technology. Any advances that increase production and make it more efficient can cause a shift to the right in the supply curve. Similarly, market expectations and the number of sellers (or competition) can affect the curve as well. Supply curve, in economics, graphic representation of the relationship between product price and quantity of product that a seller is willing and able to supply. Product price is measured on the vertical axis of the graph and quantity of product supplied on the horizontal axis. READ MORE ON THIS TOPIC supply and demand: Supply curve The quantity of a commodity that is supplied in the market depends not only on the price obtainable for the commodity but also on potentially... In most cases, the supply curve is drawn as a slope rising upward from left to right, since product price and quantity supplied are directly related (i.e., as the price of a commodity increases in the market, the amount supplied increases). This relationship is dependent on certain ceteris paribus (other things equal) conditions remaining constant. Such conditions include the number of sellers in the market, the state of technology, the level of production costs, the seller’s price expectations, and the prices of related products. A change in any of these conditions will cause a shift in the supply curve. A shifting of the curve to the left corresponds to a decrease in the quantity of product supplied, whereas a shift to the right reflects an increase. Compare demand curve. relationship of price to supply and demand Illustration of the relationship of price to supply (S) and demand (D). Encyclopædia Britannica, Inc.Download 38.15 Kb.Do'stlaringiz bilan baham:

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