The law of supply:
When the Px increases, the quantity of x
supplied increases.
When the Px decreases, the quantity of x
supplied decreases.
Two explanations for the law of supply:
(1) Ability: when the price
of x goes up, revenue increases, ceteris paribus, and producers
can buy more resources and can therefore produce more final goods.
(2) Willingness: when the price
of x goes up, ceteris paribus, profit increases, and other alternatives
for investment (i.e. opportunity costs) become less attractive, pulling
more resources into the production of x.
The supply curve or schedule:
A schedule showing the amount of a good
that producers are willing and able to
sell at various prices during a specific
period of time.
The supply function:
Qx supplied = f( Px, technology, price of
resources, profit expectations, time)
The Supply Curve (Graphically):
Just like with the demand curve, when the
Px changes, we move along with curve.
When any other independent variable changes,
we shift the curve.