Introducing Supply and Demand
Read the sections on Demand, Supply, Market Equilibrium, and Government Intervention and Disequilibrium for a mathematical exposition of the demand and supply model, clicking through to the next when you have finished each page. The chapter also covers price ceilings and price floor analysis as well as quantity regulations.
Changes in Supply and Shifts in the Supply Curve
The supply curve depicts the supplier's positive relationship between price and quantity.
Distinguish between shifts in the supply curve and movement along the supply curve
- A change in the price of a good or service, holding all else constant, will result in a movement along the supply curve.
- A change in the cost of an input will impact the cost of producing a good and will result in a shift in supply; supply will shift outward if costs decrease and will shift inward if they increase.
- A change in the expected demand for a good or service will result in a shift in supply; supply will shift outward if enthusiasm is expected to increase and will shift inward if there is an expectation for consumers preferences to change in favor of an alternate good or service.
- Non-price changes: Shocks, either exogenous or endogenous, that affect the positioning of the supply curve.