Economics and Statistics

We recently talked about the factors that cause a shift in the demand. It is now time to discuss the factors that shift the supply curve which cause the equilibrium price and demand to change. Determinants of Supply: changes in supply are caused by changes in the price of inputs, the number of firms in the market, technology, changes in the price of related goods and services, and changes in expected prices. An increase (decrease) in the price of an input results in less (more) supply as per unit production costs rise (fall). More competition increases supply, and less competition leads to less supply. If a new firm enters the market for good X, then the supply of good X increases. Improvement in technology can result in an increase in the ability of producers to supply their products. For example, the invention of the printing press increased the supply of books. An increase (decrease) in the price of a related good leads to an increase (decrease) in the supply of the other...

Since we now know what the demand and supply are in an economic model, we can combine both curves to determine the equilibrium price in the market. A market is in equilibrium at the point where the demand curve intersects the supply curve. In other words, where the supplied quantity is equal to the quantity demanded. The equilibrium price is the point in the market where there is no shortage or surplus. Markets do not automatically reach equilibrium. Instead, it is achieved after a number of trials and errors. The more information both the buyers and suppliers have, the faster the process. If a price is higher than the market equilibrium price, then the quantity supplied is higher than the quantity demanded, this results in a surplus. These excess units of goods produced incentives the producers to reduce the price and thereby reduces the quantity produced until the market reaches equilibrium. If a price is less than the market equilibrium price, then the quantity su...

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. ...