Each point on the supply curve tells you the cost of producing that particular unit. As the price increases, you would be willing to increase production. As price increase, the quantity supplied increases - it costs more to make more.
Why do supply curves slope up?
- Diminishing returns - its harder to make more. Cheaper to grow the first 10 acres of corn than the next 10 (more fertilizer, more water etc).
- Additional factors of production - if any additional factors of production have diminishing returns, you incur those returns.
What can change supply?
When price of the good changes, you move along the existing supply curve. But a change in supply shifts the supply curve.
- Any change in factor (input) prices)
- Expectations
- Technology
- Changes in other markets
- Elasticity
Price Elasticity of Supply - How much more will I produce when price goes up?
m = %change in quantity supplied / % change in prie of the good
Rizzo
-Daniel Gaona
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