Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 2] DEMAND, SUPPLY, AND EQUILIBRIUM: AN OVERVIEW 17
2.5 THE SINGLE PRODUCER’S SUPPLY OF A COMMODITY
The quantity of a commodity that a single producer is willing to sell over a specific time period is a function
of or depends on the price of the commodity and the producer’s costs of production. In order to get a producer’s
supply schedule and supply curve of a commodity, certain factors which influence costs of production must be
held constant (ceteris paribus).
These are technology, the prices of the inputs necessary to produce the commodity, and for agricultural
commodities, climate and weather conditions. By keeping all of the above factors constant while varying
the price of the commodity, we get the individual producer’s supply schedule and supply curve.
EXAMPLE 7. Suppose that a single producer’s supply function for commodity X is Qs x ¼ –40þ 20P x cet. par.
By substituting various “relevant” prices of X into this supply function, we get the producer’s supply schedule shown
in Table 2.4.
Table 2.4
P x ($) QS x
6 80
5 60
4 40
3 20
2 0
Fig. 2-4
EXAMPLE 8. Plotting each pair of values from the supply schedule in Table 2.4 on a graph and joining the resulting
points, we get the producer’s supply curve (see Fig. 2-4). As in the case of demand, the points on the supply curve represent
alternatives as seen by the producer at a particular point in time.
2.6 THE SHAPE OF THE SUPPLY CURVE
In the supply schedule of Table 2.4, we see that the lower the price of X, the smaller the quantity of X
offered by the supplier. The reverse is, of course, also true. This direct relationship between price and quantity
is reflected in the positive slope of the supply curve in Fig. 2-4. However, while in the case of the demand curve
we can talk about “the law of negatively sloped demand,” in the case of the supply curve we cannot talk of “the
law of positively sloped supply.” Even though the supply curve is usually positively sloped, it could also have a
zero, infinite, or even negative slope, and no generalizations are possible.
2.7 SHIFTS IN THE SINGLE PRODUCER’S SUPPLY CURVE
When the factors that we kept constant in defining a supply schedule and a supply curve (the ceteris paribus
condition) change, the entire supply curve shifts. This is referred to as a change or shift in supply and must be
clearly distinguished from a change in the quantity supplied (which is a movement along the same supply
curve).
EXAMPLE 9. If there is an improvement in technology (so that the producer’s costs of production fall) the supply curve
shifts downward. Thus downward shift is referred to as an increase in supply. It means that at the same price for the
commodity, the producer offers more of it for sale per time period (see Problems 2.14 and 2.15).