The Basics of Supply - Online Tutor, Practice Problems & Exam Prep

Supply refers to the behavior of sellers in the market, where the quantity supplied (QS) increases as the price rises, demonstrating a directly proportional relationship. The supply curve, which slopes upward, illustrates this relationship graphically, with price on the y-axis and quantity on the x-axis. A supply schedule lists various prices alongside their corresponding quantities supplied, reinforcing the concept that higher prices incentivize greater production. Understanding supply dynamics is crucial for grasping market equilibrium and the overall economic model.

The Basics of Supply

Alright, now that we've wrapped up our discussion on demand, let's move on to supply. So, I hope you see a lot of similarities here between what we were doing with demand and what we're going to be doing with supply. Supply relates to the behavior of the sellers or the suppliers in our market here. The suppliers, sellers, we're going to use those terms interchangeably. You might even hear producers as well. Just like we had quantity demanded, we are going to have the quantity supplied being the amount of a good that the sellers are willing to produce, right. So we're going to use the QS just like we had the QD; we've got QS here. At any given price, there's going to be a quantity that will be supplied and the supply schedule is going to list these pairs at different prices, how much quantity will be supplied. Just like we had the law of demand, now we have the law of supply. When the price of a good rises, the quantity supplied of that good rises. So, remember with demand, the price went up, the quantity demanded went down. Now they're going to be moving in the same direction. This is going to be a directly proportional relationship, right? Quantity supplied is going to rise with price. So, let me write that in here. Price is going up, that means the quantity supplied is going to go up. Vice versa, the price goes down, quantity supplied will go down, right? And this kind of makes sense, right? If there's a higher price, more people are going to be willing to sell that product like, "hey, the price of cereal went up. Maybe we should get into the cereal business," right? I don't know. So the idea here is that they're going to move together. Price and quantity supplied will move in the same direction.

Let's finish up our discussion here with the supply curve. Just like we had a demand curve, we are going to have a supply curve as well. The supply curve is a graph showing the relationship between the price of a good and its quantity supplied. And remember, just like the demand curve was what we call demand, here, this is supply, right? So we're going to make that distinction between supply and quantity supplied and we're going to just use an S for supply. Just like we use the big D for demand, we'll use the big S for supply. So here, right behind me, I've got a supply schedule for wheat and we've got different prices and different quantities that will be supplied at those prices. So notice, when there's a high price of $9, you're going to see a high quantity of 60,000 and as the price decreases, you're going to see decreases in the quantity supplied as well. So I've already put these points on our graph here and just to reiterate, right, we're going to have the price on the y-axis, quantity on the x-axis, right? Alphabetical order is the easy way to remember that. So, I'm going to go ahead and connect these dots to make our supply curve. Man, I'm just missing right now. Okay. So here we go. One more. One more. That's the one. Alright. So that will be our supply curve right there. Cool? And notice that the supply curve slopes upward and remember my little mnemonic before, the double d's: demand downward, and supply, well, that's just the other one. If you remember, demand is downward, supply is upward. Cool? Alright. Let’s go ahead and move on to the next video.

Here’s what students ask on this topic:

What is the law of supply in economics?

The law of supply states that, all else being equal, an increase in the price of a good will result in an increase in the quantity supplied. Conversely, a decrease in the price will lead to a decrease in the quantity supplied. This relationship is directly proportional, meaning that price and quantity supplied move in the same direction. This principle is graphically represented by an upward-sloping supply curve, where the price is on the y-axis and the quantity supplied is on the x-axis.

How does a supply curve differ from a demand curve?

A supply curve differs from a demand curve in its slope and the relationship it represents. The supply curve slopes upward, indicating a direct relationship between price and quantity supplied: as price increases, quantity supplied also increases. In contrast, the demand curve slopes downward, showing an inverse relationship between price and quantity demanded: as price increases, quantity demanded decreases. Both curves are essential for understanding market equilibrium, where supply and demand intersect.

What factors can cause a shift in the supply curve?

Several factors can cause the supply curve to shift. These include changes in production costs (e.g., labor, raw materials), technological advancements, taxes and subsidies, prices of related goods, and expectations of future prices. A shift to the right indicates an increase in supply, while a shift to the left indicates a decrease. These shifts occur independently of price changes and reflect changes in the underlying conditions of supply.

What is a supply schedule and how is it used?

A supply schedule is a table that lists various prices of a good alongside the corresponding quantities that suppliers are willing to produce and sell at those prices. It helps to illustrate the law of supply by showing how quantity supplied changes with price. This data can be plotted on a graph to create a supply curve, which visually represents the relationship between price and quantity supplied.

Why does the supply curve slope upward?

The supply curve slopes upward because of the direct relationship between price and quantity supplied. As the price of a good increases, suppliers are more willing and able to produce and sell more of it, as higher prices can cover higher production costs and potentially increase profits. This positive correlation between price and quantity supplied is fundamental to the law of supply.