Lesson: Supply and The Law of Supply - Again, like demand, there are two preequisites. Supply, defined, is the amount producers (sellers or manufacturers) plan to sell during a given time period at a particular price. Hence, supply refers to the entire relationship between quantity supplied and the price of a good. The supply curve normally is a downsloping curve moving from the upper right toward the left.
The Law of Supply states, "the higher the price of a good, the greater is the quantity supplied." As the quantity produced of any good increases, the marginal cost of producing the good also increases. It is never worth producing a good if the price received for it does not at least cover the marginal cost of producing it. So when the price of a good increases, producers are willing to absorb higher marginal cost and increase producing their quantities.
For the lesson in the law of supply, I must parethetically add, that any increase in supply is a move of the supply curve to the the right. When the price of a good changes, there is movement along the supply curve and a change in the quantity supplied.
Draw the Increase in Supply:
Original supply schedule New supply schedule
Old technology New technology
Price Quantity Price Quantity
A .50 0 A* .50 3
B 1.00 3 B* 1.00 6
C 1.50 4 C* 1.50 8
D 2.00 5 D* 2.00 10
E 2.50 6 E* 2.50 12
Verify your answers with Answer guide. Label title, sub-titles, and sources of information under the Header/Footer under View.
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