Defining the law of Supply and increasing marginal costs - FreeEconHelp.com, Learning Economics... Solved!

5/16/11

Defining the law of Supply and increasing marginal costs

The law of supply is very similar to the law of demand, but focuses on the firm's perspective.  The law says that as prices go up, the firm is willing to supply more to the market.  This should make sense to all of us, because the more people are willing to pay, the more we are willing to sell!  Imagine if we were in charge of a hamburger stand.  If we could only sell hamburgers for a low price, we may not be motivated to make very many.  But as people are willing to pay more and more for hamburgers, we are willing to work harder to fulfill those orders, and even spend more money on better employees an equipment.  This is price and quantity have a positive relationship with respect to supply.



The genius of these two laws, is that since one slopes down, and the other slopes up, they will cross at one point.  This point is market equilibrium.  By using prices as an allocation device, and assuming that the law of demand and supply hold, we will always attain equilibrium where the amount sold, equals the amount bought, at a given equilibrium price.

The idea of the law of supply stems from the use of marginal costs.  Marginal cost, is the cost a firm faces on the next unit produced (eg. one more quantity, or on the margin).  Imagine you are a manager at a burger restaurant.  It costs you  $10 per hour for someone to make hamburgers, all of the other costs are assumed away for now (such as buildings, machines, meat, etc.).  If you want to make hamburgers for 1 hour, it will cost you $10, but if you want to make MORE hamburgers, you will have to pay more to keep your employee around.  But now your employee may want more money to stay around (think of overtime).  So instead of paying $10 per hour, you now may have to pay $12.  This is a very simple example of marginal cost theory, and the motivation behind the upward sloping supply curve justifying the law of supply!

After viewing this post, you may be interested in how to construct a supply curve.

It is also possible to construct the supply curve given a supply function. You will need to plug in different values for price and quantity into the supply function to help create a supply schedule. Once you have enough points and a completed supply schedule you can use the information to create a supply curve on the graph. However, if you feel confident with your algebra abilities you can plug in different quantity and price values into the supply function and use the results to plot the supply curve.


11 comments:

  1. Data about the rifle is here for the majority of the client of rifle.They all are attempting to make the http://www.infographicdesignservices.com/best-info-graphic-design-services-online/ of their rifle all the more better as contrast with the majority of the others.They know how they utilize this and how they make this stable.

    ReplyDelete
  2. When you wanted to learn about the supply law then you should read here sometimes as it will give you some basics knowledge on it.

    ReplyDelete
  3. When you are really connected to this economics side then you had to know the law of supply. http://www.outsourceanything.net/professional-virtual-assistant-services/marketing-virtual-assistant-services/ to get our assistance on our regular work.

    ReplyDelete
  4. ake for instance the Law of Creation, or if you will, the Law of Energy. You've heard me talk about energy countless times because this is our composition - energy.civil litigation lawyer Toronto

    ReplyDelete
  5. Such a superb blog entry identified with the learning. At whatever point I see this https://www.besttranslationservices.com/italian-to-english-translation-services/ I feel so odiousness since this winged animal look is so exceptional. Extremely supportive site much obliged.

    ReplyDelete
  6. Here in this article, you try to give the information about the hard circle. The http://www.professionaltypist.net/outsource-typing-tasks-to-our-typing-service/ site is the contraption which stores data which past what many would consider possible.

    ReplyDelete
  7. One key factor in having a successful law practice is an effective leader. A good leader will have a vision for the firm's direction, a commitment to serving its clients, and a desire to find like-minded people that believe not only in the clients, but the brand of the firm. Toronto business lawyer

    ReplyDelete
  8. The backer backs the instance of his customer, and deals with every one of the conventions and techniques required for recording the chapter 11, just as showing up in court to speak to his customer. personal injury lawyer near me

    ReplyDelete
  9. In case you're keen on illustration up a will, deciding guardianship for youngsters or laying out what ought to occur in case you're unfit to settle on therapeutic choices for yourself, contact a bequest arranging lawyer. best car accident lawyer in philadelphia

    ReplyDelete
  10. They should know the privileges of any unfortunate casualty, the seriousness of the accident, just as, reachable reward for that and furthermore other fundamental applicable variables. how to find a good malpractice lawyer

    ReplyDelete
  11. You guardians do an astounding web diary, and have some unfathomable substance. Continue doing extraordinary. Know about Bail Bonds

    ReplyDelete