Demand for Ice Cream Cones Near Your School

0 50 100 150 200 250 300

Number of cones

Supply

Thus far we have only spoken about the effects of prices on buyers. But it takes two parties to make a sale: buyers and sellers. To the economist supply refers to the number of item that sellers will offer for sale at different prices at a particular time and place. A supply schedule is a table summarizing this information. Table below is the supply schedule that was in effect that day in April when your friends conducted their survey. It tells us how many ice cream cones they were willing to sell the students at the prices indicated.

The Law of Supply. As the supply schedule indicates, more ice cream cones would be offered for sale at higher prices than at lower ones. This is in keeping with the law of supply which states that sellers will offer more of a product at a higher price and less at a lower price.

Why does the quantity of a product supplied change if its price rises or falls? The answer is that producers supply things to make a profit. The higher the price, the greater the incentive to produce and sell the product. If ice cream prices around your school are high, your friends may buy a larger ice cream maker so they can produce and sell more ice cream. Addi­tionally, if word gets out that ice cream sells for a relatively high price near your school, other vendors will be tempted to leave their present locations and come to your high school in the belief that they can make more profit.

Supply Schedule for Ice Cream Cones Near Your School, April 1
Price Per Cone	Quantity Supplied
$.50
$.75
$1.00
$1.25
$1.50
$1.75
$2.00

 

Our supply schedule is based on holding variables other than price at some fixed or constant level. On this basis we can use the supply schedule to draw the supply curve (Figure below).

Supply for Ice Cream Cones Near Your School

Price per Cone Price per Cone

 

 

Number of cones

 

0 50 100 150 200 250 300

Number of cones

As in the case of demand, supply curves need not be straight lines. Unlike demand, the typical supply curve slopes upward from left to right.

Changes in Supply. When supply changes, the entire supply curve shifts either to the right or to the left. This is simply another way of saying that sellers will be offering either more (if supply has increased) or less (if supply has decreased) of an item at every possible price. Any or all of the following changes are likely to affect the quantities supplied.

Ø Changes in the cost of production. If it costs sellers less to produce their products, they will be able to offer more of them for sale. An increase in production costs will have the opposite effect — supply will decrease.

Ø Other profit opportunities. Most producers can make more than one product. If the price of a product they have not been producing (but could if they chose to) increases, many will shift their output to that product. For example, as personal computers increased in popularity, a need developed for computer stands. As a result, many furniture manufacturers began to produce desks and carts specifically designed for the computer market. |

Ø Future expectations. If producers expect prices to increase in the future, they may increase their production now to be in position to profit later. Similarly, if prices are expected to decline in the future, producers may reduce production, and supply will fall.

Changes in supply are illustrated graphically in Figure 6.

Price per Cone

The price at which supply exactly equals demand is known as the market price, or the point of equilibrium. In the table above, the market price would be $1.00 because at that price the quantity of ice cream cones demanded and the quantity supplied are exactly equal. Figure 8 represents this information graphically.