Supply Terminology

As with demand, economists separate changes in the amount that sellers will sell into two categories. A change in supply refers to a change in behavior of sellers caused because a factor held constant has changed. As a result of a change in supply, there is a new relationship between price and quantity. At each price there will be a new quantity and at each quantity there will be a new price. A change in quantity supplied refers to a change in behavior of sellers caused because price has changed. In this case, the relationship between price and quantity remains unchanged, but a new pair in the list of all possible pairs of price and quantity has been realized.

Supply curves as well as demand curves appear much more concrete on an economist's graph than they appear in real markets. A supply curve is mostly potential—what will happen if certain prices are charged, most of which will never be charged. From the buyer's perspective, the supply curve has more meaning as a boundary than as a relationship. The supply curve says that only certain price-quantity pairs will be available to buyers—those lying to the left of the supply curve.

Next we put supply and demand together.

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Copyright Robert Schenk