Overview
This lecture introduces the concept of supply from the producer's perspective, contrasting it with demand, and explains the law of supply and how it appears graphically.
Supply: Definition & Perspective
- Supply is the amount of a good or service producers are willing and able to sell at each price.
- The concept of supply shifts the focus from consumers (demand) to producers in the market.
Law of Supply
- The law of supply states that as the price of a good or service rises, the quantity supplied increases (all else constant).
- Conversely, as the price falls, the quantity supplied decreases.
- This positive relationship exists because higher prices incentivize producers with greater profits.
- When prices are high, firms expand production and invest more resources toward that good.
- When prices are low, producers may reduce supply or shift to other more profitable goods.
Supply Schedules and Curves
- A supply schedule lists the quantity supplied at each price level.
- The supply curve is upward sloping, demonstrating that higher prices lead to higher quantities supplied.
- In contrast, the demand curve slopes downward, showing opposite consumer behavior.
Key Terms & Definitions
- Supply — The total amount of a good or service producers are willing and able to sell at each price.
- Quantity Supplied — The amount of a good or service producers are willing and able to sell at a specific price.
- Law of Supply — The principle that quantity supplied rises as price rises, and falls as price falls, all else equal.
- Supply Schedule — A table showing the quantity supplied at each possible price.
- Supply Curve — A graphical representation of the supply schedule, typically upward sloping.
Action Items / Next Steps
- Prepare for the next lecture where both supply and demand will be combined.
- Review the shapes and directions of supply and demand curves on graphs.