The Supply Curve: Why do prices go up as quantity supplied goes up?
I can understand that as prices go up, more people want to produce and supply will go up. However, if we read the graph the other way, it seems to suggest that as supply increases, so does price.
I would think that as supply increases, prices would go down? However, this is not what the graph suggests. Why would price continue to go up and up as supply goes up and up?
Is this at all realistic without the demand curve plotted on the same graph?
Answer:
It is easier to think about the supply curve, if you ask the question a little bit differently:
If the supplier tries to supply more, what happens to his or her costs of production. As the supplier tries to increase production, more workers need to be hired. At first, these workers are very productive. But, as the number of workers increase, average costs rise. The pool of workers becomes restricted, meaning that additional workers are not as productive as the first hires. Also, a larger firm becomes more wieldy, making communication and decision-making more difficult.
So, for many reasons, average costs tend to rise as production increases. This is captured by a supply curve that is upward sloping.
The important question (and the one that matters), is your last one. The supply curve does NOT matter unless you also include the demand curve.
The supply curve is a good measure of market reactions, but it only matters if you also show demand, as there is no supply without demand.
The REALLY important thing to note here though, is that there are two different dynamics in any supply and demand graph. There is movement ALONG the line, as well as movement OF the line. Many changes in a market are movements OF the line, which changes your equilibrium, and thus your market price, without changing the producers or consumers relevant desires to produce/consume at a certain price. That is the real important (and sometimes tricky part): knowing when a change is a movement ALONG or movement OF the line.
This is exactly why your statement or the equal of "why do prices go down as demand goes up" make little sense. The prices don't go down. Producers would supply more if prices were already that high (which is why the line slopes up), but the reason price goes up is not because the producers move along that line, it is because the whole line moves!
You must know clearlu what the supply curve is. It does not show that in the market when supplies increase, prices go up. You have got it all wrong because you may not have been tuaght by a teacher.
Supply curve shows only the quantity of supply that would come at different prices. Consider yourself as a supplier. Would you not sell more when the prices are higher. Even if you do not raise supply, someone else who was not earlier supplying will now start manufacturing and supply if the prices go up. I could not compete with you when the price was 10 because my cost was 12. Now that price has gone up to 13, I will strt manufactruing and supplying.
So, the supply curve says how much supplies will come to the market at different prices: higher the prices , higher will be supply. It does not say higher supply will lead to higher prices.
Once you introduce the demand curve as well into the diagram, you will know it better and it will also show you that if the supply increases at the same price, other things remaining the same, price will fall.
You must have seen the point of equilibrium between demand and supply on the graph. The inetersection point between the demand and supply curves is the market equilibrium and you got the market clearing price there. Now, if at that price supply increases, it means that the supply curve will shift to the right. When the supply curve shifts right, it intersects the demand curve at a point to the right and below the earlier intesection. At the new poibt you have a new market clearing price where the supply is higher than the previous equilibrium but the price is lower. So, you have got what you are looking for. The supply has increased (the supply crve shift to right: more supply at different prices than before) and the market clearing price has fallen. Please ask for clarification if needed.
The supply curve goes up as prices goes up because the two are dependent of each other. You have to see it from the firm's view.
If you could sell an milk for $3 then you would sell a certain amount. However if you could sell an milk for $30 then you would want to produce more in order to increase Total Revenue. The seller isn't going to produce 1000 bottles of milk just to sell at $3 is the market doesn't call for it but he might if the prices is a $30.
The law of supply is basically the seller intention.
As the price of a good, service, or resource rises, the quantity of the good, service, or resource supplied increases.
quantity supplied goes up as prices go up. A business is willing to supply more goods if the price they receive for those goods is higher.
heres the deal, the more there is, and the more people are willing to pay for it the prices go up. its like oil, they produce millions of gallons and as more people are willing to pay more to get a share of it, the prices go up unless of course supply is so plentiful that the only way to get rid of the inventory is to sell it at a cheap price.
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