Supply is the amount of a good or service firms or producers are willing to make and sell at different prices. The amount they are able to make and sell is known as the quantity supplied of that product divided into periods of time.
A private sector company that wants to make money will only make and sell a product if it is profitable to do so. The higher the price of the product, the more the company wants to supply because that means they will get more profit. As price rises, quantity supplied tends to rise too.
Imagine you want to sell bags of chips to your friends. If someone offers you 10 cent you would start to think if it is really a good offer, whereas if they would give you 2 euros, you would give them the bag of chips straight away without a doubt. In this example, you are the producer and you prefer a higher price for your bag of chips. In real life, this happens too, more companies want to sell their product for a really high price to get a lot of revenue.
The market supply of a product is the amount supplied by the companies competing to supply that product.
Therefore, the supply curve for any product will slope upwards, showing that as price rises, quantity supplied extends.
As price falls, quantity supplied goes down. This is because as price falls companies will not make as much money.
A private sector company that wants to make money will only make and sell a product if it is profitable to do so. The higher the price of the product, the more the company wants to supply because that means they will get more profit. As price rises, quantity supplied tends to rise too.
Imagine you want to sell bags of chips to your friends. If someone offers you 10 cent you would start to think if it is really a good offer, whereas if they would give you 2 euros, you would give them the bag of chips straight away without a doubt. In this example, you are the producer and you prefer a higher price for your bag of chips. In real life, this happens too, more companies want to sell their product for a really high price to get a lot of revenue.
The market supply of a product is the amount supplied by the companies competing to supply that product.
Therefore, the supply curve for any product will slope upwards, showing that as price rises, quantity supplied extends.
As price falls, quantity supplied goes down. This is because as price falls companies will not make as much money.
Exercises
1. Explain why the market supply curves for most products are "upward sloping"
2. Define "supply"
3. Explain how the supply curve of a product of an individual firm and the market supply curve for the same product are related.
1) Because the higher the price the more supply.
ReplyDelete2) Supply is the amount of a good or service firms or producers are willing to make and sell at different prices.
3) Because this firms supply is part of the market supply. The market supply measures the amount supplied by all companies and one of them is this firm. So it is like the firms supply is a subset of the market supply.
Those would be the correct answers, yes.
Delete