Chapter 14: Problem 510

State the law of supply.

Short Answer

Expert verified

The Law of Supply states that there is a direct relationship between the price of a good or service and the quantity that suppliers are willing to produce and offer for sale. As the price increases, so does the quantity supplied, and as the price decreases, the quantity supplied decreases. The supply curve, which is an upward sloping line, represents this relationship graphically. Supply elasticity measures the responsiveness of producers to price changes, with elastic supply being highly responsive and inelastic supply being less responsive.

Step by step solution

Define the Law of Supply

The Law of Supply is an economic principle that outlines the direct relationship between the price of a good or service and the amount that suppliers of the market are willing to offer. In other words, as the price of a good or service increases, so does the quantity that producers are willing to produce and offer for sale. Conversely, as the price decreases, so does the quantity supplied.

Describe the factors affecting the supply

Several factors can impact the supply of a good or service in the market. Some of these factors include production costs, technological advancements, the number of sellers in the market, and government regulations, among others. These factors can either increase or decrease the amount of good or service that suppliers are willing to produce, thus affecting the overall supply curve.

Explain the concept of the supply curve

The supply curve is a graphical representation of the relationship between the price of a good or service and the quantity supplied. The supply curve is an upward sloping line, as higher prices result in an increase in the quantity supplied. The curve also shows the responsiveness of producers to the change in price, which is called supply elasticity.

Discuss supply elasticity

Supply elasticity is a measure of how sensitive the quantity supplied is to a change in the price of a good or service. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. If the supply elasticity is greater than 1, it means that the supply is elastic, and producers are highly responsive to price changes. If the supply elasticity is less than 1, it means that the supply is inelastic, and producers are not very responsive to price changes. If the supply elasticity is equal to 1, it means that the supply is unit elastic, and the percentage change in quantity supplied is equal to the percentage change in price.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!