Supply Curve Definition
The supply curve is a graphic illustration of the interaction of price and supply. The principle is that the higher the price, the greater the supply of producers.
The term supply curve comes from the field of economic theory and describes the natural relationship between supply and price of a product or service. The fundamental consideration behind the term is the fact that the higher the price to be paid for it, the higher the quantity supplied of a good.
The supply curve is therefore usually rising more or less - depending on the product concerned. The course of the supply curve is also influenced by the so-called supply elasticity. This indicates how strong the relative quantity change is in relation to the corresponding price change.
Explanation of the supply curve
The supply curve graphically illustrates the relationship between the price and the quantity supplied for a good. The key idea: the higher the price of a good, the higher the quantity supplied. Thanks to the higher price, the producers can generate higher profits, which serves as an incentive for the expansion of the production volume. On the other hand, if the price is comparatively low, the production is hardly or not at all worth it. In addition, higher production quantities, in theory, are usually associated with higher marginal costs.
Classically, the supply curve goes up from the origin at a 45-degree angle. However, displacements of the curve are also conceivable. If the curve does not originate from the zero point, but on the Y-axis, then the production of the good pays off only from this point or price.
Important statements of the supply curve - displacement, elasticity, marginal costs
The supply curve not only indicates the quantity produced at a given price. It has the following important information ready:
- Elasticity: The slope of the supply curve allows a statement about the supply elasticity. It measures how much supply changes when the price is lowered by 1 percent. If the quantity supplied decreases more than 1 percent, then one can say that the product has an elastic supply. The supply curve is very steep in this case.
- Marginal cost: The supply curve always shows the marginal cost of the producer, if it is a market with perfect competition.
- Shift: Changes in the market composition or the market situation can be identified by shifts in the supply curve. If the general production costs fall, the supply curve shifts to the right or down. Because then, at the same price, significantly more goods can be produced cost-effectively.
On the open market, goods and services are offered and demanded. On the supply side, depending on the type of good or service there are different providers. The supply quantity of these goods depends on the price, the corresponding graphical representation is the supply curve.
The supply curve shows the quantity of a specific good or service as a function of the price, with the offer quantity being plotted on the abscissa. The providers will offer more goods of this kind at a higher price, or at lower prices, they will offer less.
Other courses of the supply curve are rather rare, for example, perishable goods. In that case, the supply can increase even with falling prices. Classic goods and services, such as a property, are then offered more frequently when prices rise, or the other way round, the price has to rise until another provider decides to offer their property to the market.
Shift of the supply curve
Under certain conditions, the supply curve may shift. In the case of real estate, this could be the case if the state subsidizes new housing construction and, accordingly, more new buildings are built. The supply curve shifts to the right, in this case, more suppliers will offer the good at the same prices. A shift to the left can occur when raw materials for the construction of real estate become more expensive.
Do you know Accounting - What is the accounting?
No comments:
Post a Comment