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Microeconomics: Supply

I recently talked about demand, it is time to now explain and define what supply is in a basic economic model.

Supply: producer's willingness and ability to sell a good or service at various prices that exist in the market at a given time.

  • Law of Supply: producers want to offer higher quantities for sale at higher prices.
  • Increasing marginal cost: The cost of production increases for each additional unit produced. This is caused by two factors:
    • As production of a good increases, firms bring factors of production that are not optimized to make the good in question. 
    • Firms experience diminishing return when they increase production. This is mainly due to the factors of production that are fixed in the short run (i.e: machines, land, the size of the factory, etc...). Thereby, each additional worker will increase the production by successively less and less.
Supply can be displayed as an upward sloping curve which illustrates the law of supply.



Also, if one wants to derive a market supply curve, use the horizontal summation method, as explained in one of my previous posts.

Reference: Mayer,David. AP Microeconomics Crash Course. Research & Education Association (2014). p 51-53.
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