Supply and demand play big roles in the economy. In this lesson, you’ll discover what supply is, how we describe it, and how market supply schedules are created.
An economy is a system in which suppliers produce the goods and services that consumers demand. It’s where consumers make choices about what to consume, and producers decide what to produce and how much of it to produce.
So, let’s talk about supply, what it means, what it looks like, and how we get the market supply schedule.Supply is the relationship between the quantity of a good or service and its price. It’s how much of a product or service is available for sale in a market.The supply of bananas that nearby banana growers produce will change depending on the price of the bananas in the store. When bananas can be sold for 30 cents each, then local banana growers are willing to produce, let’s say, 400 of them per week. If the price of bananas goes up to 60 cents for the same bananas, local banana growers are excited at the thought of how much profit they can make, and they’re willing to supply 800 bananas instead.
This is what we call quantity supplied.
Quantity supplied is how much of a good or service sellers are willing and able to supply at a particular price. When you start to tally up all the different prices you could charge for a good or service, then you find a different quantity supply for each price. That’s why we have what’s called a supply schedule.
I’m not sure about you, but when I hear the words ‘supply schedule,’ I immediately think of some sort of calendar telling me when I’m supposed to pick up cleaning supplies or food, canned goods or something. This is not what we’re talking about in macroeconomics.A supply schedule is a table that illustrates how much of a good or service suppliers are willing and able to supply at many different prices.
For example, the supply schedule for local bananas sold at the supermarket might look like this:
Supply Schedule for Bananas
|30 cents||500 bananas week|
|40 cents||600 bananas a week|
|50 cents||775 bananas a week|
|60 cents||1000 bananas a week|
The supply schedule shows you how the supply changes when you increase or decrease the price. As you can see from this supply schedule, when the price goes from 30 cents to 60 cents, the amount of bananas supplied goes up.Now, the supply schedule works the same way for services. Let’s look at a supply schedule for Bob’s Low-Rider Lawn-Cutting services in the neighborhood.
Supply Schedule for Bob’s Low-Rider Lawn Mowing
|$15||32 cuts per week|
|$20||35 cuts per week|
|$25||39 cuts per week|
|$30||45 cuts per week|
|$35||60 cuts per week|
|$40||80 cuts per week|
As you can see, this supply schedule shows the quantity supplied at each possible price for the service that Bob performs for the neighborhood. At a price of $25 per cut, Bob is willing and able to cut 39 lawns.
At a price of $40 per cut, he’s willing to cut 80 lawns per week. The higher the price Bob gets for his service, the more profit he can make, and the more lawns he’s willing to cut. Let’s just hope that, with all those bananas supplied, Bob doesn’t end up running over too many banana peels in the process and going bananas.
The Market Supply Schedule
Let’s talk about bananas again. In the very first example, we looked at the local banana growers and how many bananas they were willing and able to supply to the supermarket. But, these are not the only banana growers in the economy. People are buying bananas in supermarkets all over the country, which means the supply of bananas is much larger.
What we want to know in economics is: how many bananas will all the suppliers supply at different prices? That’s where the market supply schedule comes in.The market supply schedule is a table that lists the quantity supplied for a good or service that suppliers throughout the whole economy are willing and able to supply at all possible prices. Let’s look at a market supply schedule for bananas:
Market Supply Schedule for U.S.
|30 cents||85,000 tons of bananas per week|
|40 cents||89,000 tons of bananas per week|
|50 cents||100,000 tons of bananas per week|
|60 cents||130,000 tons of bananas per week|
As you can see, instead of listing the quantities supplied each week from the local supermarket, it shows us how many tons of bananas suppliers are willing to supply each week across the entire economy. In reality, they’re not necessarily going to sell this many, because the people buying bananas will buy fewer bananas when the price goes up, but they key is that the market supply schedule shows us the number of bananas that banana growers are willing and able to sell.
To summarize what we’ve talked about in this lesson:
- Supply is the relationship between the quantity of a good or service and its price. It’s how much of a product or service is available for sale in a market.
- A supply schedule is a table that illustrates all the quantities supplied at different prices.
The supply schedule shows you how the supply changes when you increase or decrease the price.
- The market supply schedule is a table that lists the quantity supplied for a good or service that suppliers throughout the whole economy are willing and able to supply at all possible prices.
By the end of this lesson you’ll be able to:
- Define supply
- Illustrate quantities supplied at different prices using a supply schedule
- Observe changes in quantity supplied at different costs
- Analyze a market supply schedule