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Implies a choice
the quantity that firms choose to sell maximizing profit given their constraints
Supply curve
relationship between the price of a good and the quantity supplied, with all other variables held constant Each point on the curve total quantity that sellers would choose to sell at a specific price Slopes upward - Law of Supply
Price
4.00
2.00
40,000
60,000
Quantity
S2
4.00
60,000
80,000
Quantity
2. Price of Alternatives
Other goods that a firm could produce A rise in the price for an alternative
decrease in supply (leftward shift)
technological advances
increase the supply of a good
4. Number of Firms
5. Expected price
Favorable weather
increases crop yields increases the supply (rightward shift)
Unfavorable weather
destroys crops, shrinks yields, decreases the supply (leftward shift)
P1 P2 B
P2 P1 A
Q2 Q1
Q1
Q2
Equilibrium
Price S E
3.00
1.00
D
25,000 50,000 75,000 Quantity
Excess Demand
the amount by which quantity demanded exceeds quantity supplied - at a given price
Buyers compete with each other to get more of the good than is available The price will rise Equilibrium is reached
Excess Demand
Price
3.00
1.00
J D
Quantity
Excess Supply
the amount by which quantity supplied exceeds quantity demanded - at a given price
Sellers compete with each other to sell more than buyers want The price will fall Equilibrium is reached
Excess Supply
Price 1. At a price of 5.00 per bottle an excess supply of 30,000 bottles . . . Excess Supply 5.00 3. shrinking the excess supply . . . S
K
E
3.00
D
2. causes the price to drop 35,000 50,000 65,000 Quantity
D2 D1
5. equilibrium quantity increases too 50,000 60,000 Quantity
S1
3.00
S1
3.00
E D2 D1 Quantity