The Law Of Supply

How does a change in price affect quantity supplied? When a seller can get a higher price for a good, producing and selling it become more profitable. Producers will devote more resources toward its production—perhaps even pulling resources out of other types of production—and increase the quantity of the good they would like to sell. For example, a rise in the price of laptop computers will encourage computer makers to shift resources out of the production of other things (such as desktop computers) and toward the production of laptops.

In general, price and quantity supplied are positively related: When the price of a good rises, the quantity supplied will rise as well. This relationship between price and quantity supplied is called the law of supply, the counterpart to the law of demand we discussed earlier.

The law of supply states that when the price of a good rises, and everything Law of supply As the price of a else remains the same, the quantity of the good supplied will rise. good increases, the quantity sup plied increases.

Once again, notice the very important words "everything else remains the same." Although many other variables influence the quantity of a good supplied, the law of supply tells us what would happen if all of them remained unchanged as the price of the good changed.

Supply schedule A list showing the quantities of a good or service that firms would choose to produce and sell at different prices, with all other variables held constant.

Supply curve A graphical depiction of a supply schedule; a curve showing the quantity of a good or service supplied at various prices, with all other variables held constant.

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