Question

What is a supply schedule? What is a supply curve?

Short answer

A supply schedule is a table representing the relationship between the price of a good and the quantity supplied. On the other hand, a supply curve is a graphical illustration of this relationship, where the curve slopes upwards showing that more goods are supplied as the price increases.

Step-by-step solution

Defining Supply Schedule

A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. At higher prices, a greater quantity is supplied, reflecting the law of supply.

Example of Supply Schedule

For example, suppose a hat maker produces 5 hats when the price is $10 each, but they produce 10 hats when the price raises to $20 each. This shows a positive correlation between price and quantity supplied.

Defining Supply Curve

A supply curve is a graphic representation of the relationship between product price and the quantity of the product that a seller is willing and able to supply. The supply curve slopes upward, reflecting the positive relationship between price and quantity supplied.

Example of Supply Curve

For instance, on a graph where the x-axis represents quantity and the y-axis represents price, the supply curve would slope upward. If 10 hats are supplied at $20 each, and 5 at $10 each, the curve will move upwards as the price increases.

Key concepts

Supply Curve

Imagine a line chart where every point reflects how much of a product would be supplied at a certain price; this is what we call a supply curve. It is the graphical representation of a supply schedule, depicting the relationship between the price levels of a good and the amount of the good that producers are willing and able to sell. Usually, a supply curve slopes upwards from left to right, which can be attributed to the law of supply. This upward slope means that as the price increases, producers are prepared to supply more of the good, since they stand to make a greater profit.

For instance, if we were plotting the supply of apples on such a graph, and we know that at \(1 per apple, growers are willing to supply 100 apples, but if the price rises to \)2, the supply might increase to 200 apples. This positive relationship between price and quantity supplied would be visually represented by a line starting at the point (100, \(1) and rising to the point (200, \)2). This is a simple yet potent image for understanding how sellers respond to changes in price.

Law of Supply

The law of supply is a fundamental principle in economics that states that, all else being equal, an increase in the price of a good will lead to an increase in the quantity of the good supplied. It's essentially about the producers' response to changing prices. Here's why it makes sense: higher prices often mean more revenue for producers. In response to higher potential earnings, they are incentivized to produce more, bringing more of the good to the market. Conversely, if prices fall, the incentive to produce and sell decreases, leading to a reduction in quantity supplied.

Take the example of a coffee shop. If the price for a cup of coffee goes up due to high demand, the shop might increase its coffee supply to capture more earnings. They might brew more coffee, employ extra staff, or extend opening hours. If the price drops, they may cut back on these activities. This principle is seen across markets, influencing how suppliers react to market fluctuations and price changes.

Price and Quantity Supplied

The concepts of price and quantity supplied are closely intertwined. Price, in this context, is the amount of money that is exchanged for a good or service, while quantity supplied refers to the number of units of a good or service that producers are willing to sell at a particular price. According to economic theory, there is a direct relationship between the two: as the price increases, so does the quantity supplied.

Returning to the example of the hat maker from the original exercise, when the price per hat is \(10, they supply 5 hats to the market. However, when the price doubles to \)20, their willingness to supply doubles as well, leading them to produce 10 hats. This demonstrates the basic economic belief that producers will supply more of a good as its price rises, aiming to maximize their profits. Being aware of this relationship is crucial for students as it forms the backbone of supply analysis in economics.