B. The supply schedule

Let US now turn from demand to supply. The supply side of a market typically involves the terms on which businesses produce and sell their products. The sup- ply of tomatoes tells us the quantity of tomatoes that will be sold at each tomato price. More precisely, the supply schedule relates the quantity supplied of a good to its market price, other things constant, In considering supply, the other things that are held constant include costs of production, prices of related goods, and government policies.

The supply schedule (or supply curve) for a commodity ‘shows the relationship between its market price and the amount of that commodity that producers are willing to produce and sell other things ,held constant.

THE SUPPLY CURVE

Table 3 shows a hypothetical supply schedule for cornflakes, and Figure 5 plots the data from the table in the form of a supply curve. These data show that at a cornflakes price of $1 per box, no corn- flakes at all will be produced. At such a low price, breakfast cereal manufacturers might want to devote their factories to producing other types of cereal, like bran flakes, that earn them more profit than corn- flakes. As the price of cornflakes increases, ever more cornflakes will be produced. At ever-higher corn- flakes prices, cereal makers will find it profitable to add more workers and to buy more automated corn- , flagellating machines and even more cornflakes factories.All these will increase the output of corn- flakes at the higher market prices.

Figure ~5 shows the typical case of an upward- sloping supply curve for an individual commodity. One important reason for the upward, slope is “the law of diminishing returns” (a concept we will learn more about later). Wine will illustrate this important law. If society wants more wine, then additional labor will have to be added to the limited land sites suitable for producing wine grapes. Each new worker will be adding less and less extra product, The price needed to coax ~t additional wine output is there- fore higher. By raising the price of wine. society can persuade wine producers to produce and sell more wine; the supply curve for wises therefore upward sloping. Similar reasoning applies to many other goons as well.

The table shows. for each price. the quantity of cornflakes that cereal makers want to produce and sell. Note the positive relation between price and quantity supplied.

The supply curve plots the price and quantity pairs from Table !J-!J. A smooth curve is passed through these points to give the upward-sloping supply curve. SS.

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