Supply, Demand, and the Invisible Hand
Supply: You Want It, We Got It
Just as there is a quantity that consumers will demand at a given price, there is a quantity that producers will supply at a given price. The demand schedule depicts the relationship between the price of a good and the quantity consumers will buy. Similarly, the supply schedule depicts the relationship between the price of a good and the quantity that producers will make.
As you may imagine, the relationship between price and quantity supplied differs from that between price and the quantity demanded. Table 4.3 below depicts this relationship.
The supply schedule shows the quantity of a product that producers will produce (supply) at a series of specific prices. Holding all other things constant, the higher the price, the greater the quantity of beef producers will supply, and the lower the price, the lower the quantity of beef people will supply.
Notice the positive relationship between price and quantity supplied: the higher the price, the higher the quantity supplied. This stands in contrast to the inverse relationship between price and quantity demanded. When the data are plotted on a chart, they generate a very different curve.
The supply curve depicts the quantities that producers will make at a series of given prices. As you can see, the quantities supplied at the various prices generally differ from those that consumers are willing to purchase at those prices. We'll see how this is resolved later in this section.
The supply curve can apply to a single supplier or to all suppliers as a whole, and it holds true for virtually every product or service produced for profit in a market economy. Also in “holding all other things constant,” the supply schedule and supply curve leave certain realities out of the analysis in order to focus solely on price. Those other things can change the overall relationship between price and quantity supplied, so let's look at them just as we did for demand.
Excerpted from The Complete Idiot's Guide to Economics © 2003 by Tom Gorman. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.