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| | When solving a problem in economics, always take care to keep the "supply" and "demand" curves separate in your mind, even though they are superimposed on each other in one graph. The "supply" curve is from the perspective of the seller, the owner, the manufacturer, the company, etc. It is on this side that the good is produced (or obtained) and then sold to the public. In some ways this side is more difficult for students to understand, because in real life students are almost always on the opposite side, the demand side, where the buyers are. | | When solving a problem in economics, always take care to keep the "supply" and "demand" curves separate in your mind, even though they are superimposed on each other in one graph. The "supply" curve is from the perspective of the seller, the owner, the manufacturer, the company, etc. It is on this side that the good is produced (or obtained) and then sold to the public. In some ways this side is more difficult for students to understand, because in real life students are almost always on the opposite side, the demand side, where the buyers are. |
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| − | Question: what the price in a graph of the supply curve really represent? The price for a supply curve is the '''''market price for the sale of his goods or services'''''. When that market price increases, the supplier will produce more of his good (or provided more of his services). As the salaries of baseball players has increased in the major leagues, more and more people have tried to become professional baseball players. The more profitable that the sale of a good becomes, the more of that good that people want to produce (or, in the case of baseball, the more of that service that people want to provide). | + | '''''Question''''': what does the price in a graph of the supply curve really represent? The price for a supply curve is the '''''market price for the sale of his goods or services'''''. When that '''''market''''' price increases, the supplier will produce more of his good (or provide more of his services). For example, as the salaries of professional baseball players for their services have increased in the major leagues, more and more people have tried to become professional baseball players to benefit from the higher prices paid for the services. The more profitable that the sale of a good becomes, the more of that good that people want to produce (or, in the case of baseball, the more of that service that players want to provide). |
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| − | Let's take an example. If the market price of oil is low, as in only $10 a barrel, then there is no incentive to increase the production of oil. No one is going to want to drive for new oil wells. It's not worth it. It's not profitable enough. But as the market price of oil increases to $100 a barrel, then there is much profit to made by producing more oil. Companies drill new oil wells in order to sell at the high price and make more profits. The supply of oil increases as its market price increases. | + | Let's take another example. If the market price of oil is low, as in only $10 a barrel, then there is no incentive to increase the production of oil. No one is going to want to drill for new oil wells. It's not worth it. It's not profitable enough. But as the market price of oil increases to $100 a barrel, then there is much more profit to made by producing more oil. Companies drill many new oil wells in order to sell at the high price and make more profits. The supply of oil increases as its market price increases. |
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| − | This is the '''''Law of Supply: as the market price for a good increases, the quantity supplied will increase.''''' That is because as the market price increases, there is an incentive to supply more of the good or service is supplied to the market. This is why the supply curve is upward sloping. | + | This is the '''''Law of Supply''''': as the market price for a good increases, the quantity supplied will increase. This is because as the market price increases, there is an incentive to supply more of the good or service is supplied to the market. This is why the supply curve is '''''upward sloping''''' on a graph of price and quantity. |
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| | == What Happens When the Supplier Increases His Price? == | | == What Happens When the Supplier Increases His Price? == |