Friday, May 9, 2008

Why do sUPply curves slope UPward?

Why do sUPply curves slope UPward?


A: As the price of a product increases, more producers are able to cover their costs of production. Thus the quantity supplied of a product increases as the price of the product increases.

There is usually a direct relationship between the price of a product and the quantity supplied of it.
• When a product becomes more expensive, producers tend to supply more of it.
• When a product becomes cheaper, producers tend to supply less of it.

Cold Soda Example

Suppose people are willing to pay $2 for a cold soda on Saturday afternoons in a local park. An entrepreneur might buy sodas from a store, refrigerate them, and set up a stand near the park. If the price people were willing to pay for a soda rose to $5, however, more people might find it worth their time and effort to start up a soda stand. If this happened, the quantity of sodas supplied near the park would increase.

Labor Supply Example

Suppose Jacksonville University decides to hire students to rake leaves on an autumn Saturday. As the wage offered increases, more students would be willing to spend their Saturday raking leaves. For example, the supply might resemble the table below.

Price of Labor
(wage paid per hour of labor) Quantity of Labor Supplied
(number of people who are willing to rake leaves on Saturday)
$50 100
$25 10
$10 2
$5 1
$1 0
Table 3. An example of a supply schedule in the market for labor.

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