Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

Tuesday 3 January 2012

Supply

   2.2       Supply

Definition of supply
Supply is refers to ability and willingness to sell or produce a specific quantities of goods in a given period of time at a particular price, ceteris paribus. Ceteris paribus is a Latin phrase that means holding other factors constants while some other factors change.

Law of Supply
The law of supply states that there is a positive relationship between price of the product and quantity supplied. When the price of the product increase, the quantity supplied of that product will be increase and when the price of the product decrease, the quantity supplied of that product will be decrease, ceteris paribus.

Supply schedule and Supply curve
The supply schedule for a product is a list of the quantity that a producer is willing to sell at different prices at one particular time. Table 2.4 shows the quantity supply of apples at each price level.

 
Table 2.4: Individual Supply Schedule for apples. 

Combination
Price (RM)
Quantity (units)
A
100
5
B
80
4
C
60
3
D
40
2
E
20
1

The above supply schedule can be shown in a diagram to show how we obtain a supply curve (see Figure 2.6)
 
The supply curve shows the relationship between the quantities supplied of a product and its price. The supply curve must slope upwards (positive slope) because the direct relationship between price and quantity demanded (according to the law of supply).


 Individual supply and Market supply
Individual supply is shows the relationship between the quantity of a product supplied by a single seller and its price.
Market supply is shows the relationship between the total quantity of a product supplied by additional all quantities supply by all seller in the market and its price.

To discuss about the market supply, assume only have two sellers in the market, for example Zaki and Epin. Table 2.5 shows both the individual supply and market supply for the apples.

  Table 2.5: The individual and market supply for apples
Combination
Price (RM)
Zaki (units)
Epin (units)
Market Supply (units)
A
80
8
10
18
B
60
6
8
14
C
40
4
6
10
D
20
2
4
6
 
Plot the supply curve based on the information given in table 2.5 to show the market supply in a graph paper (see figure 2.7). 

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