What are abnormal supply curves
You want to learn what to do with the Supply curveand offer function is all about? Here you will learn how the relationship between offer and price is put into a mathematical or graphical context.
Would you rather learn with a video? Then just scroll up!
Supply curve simply explained
The offer corresponds to quantity of a good used by sellers on the market is offered. TheLaw of supply states: If the price rises, the quantity on offer rises and vice versa. The Offer function puts this positive relation between price and quantity into a mathematical formula. The Supply curve then establishes the mathematical contextgraphically in one Price-quantity diagram From this you can see what price a good has for a certain amount offered. Remember that aggregated market supply corresponds to the sum of all quantities offered on a market. Imagine you are in a fish market. There are only two stalls selling 4 fish each. The aggregated market supply is then eight. If the Market situation by external factors changes, for example due to dwindling fish stocks, the supply is changed regardless of the price. This leads to an increase or decrease in the supply itself, and shifts the entire curve to the right or left.
Together with the demand function, this can Market equilibrium be determined. If you don't quite understand what supply and demand is all about, watch the basic video beforehand!
Law of supply
The law of supply says that the amount offered depends on the price of the good. Take the example of the fish market. The higher the price of fish, the higher the amount offered on the market. The cause of the positive connection is the goal of Profit maximization from fishmongers. Higher prices are a motivation to offer more fish because it increases the yield. As a consequence, the aggregated quantity offered also increases. However, the law assumes that all external factors remain the same. In the wake of the supply function you often come across the concept of Price elasticity of the offer.The value indicates how the offered quantity changes if the price rises or falls by one percent.
Shift in the supply curve
Basically, you assume that the amount offered is determined solely by the price. However, the supply can also be reduced or increased due to a change in the market situation. But what changes the supply volume, if not the price? There must be external factors that change the market situation. In total, there are five factors that cause the supply curve to shift. An increase in the offer leads to Right shift. A lowering of the supply leads however to Left shift.
Price of factors of production
For example, if your fishing nets become more expensive to buy, you will also offer less(Left shift) If, on the other hand, the price of crude oil drops, you need less money to operate the cutter and the supply increases(Right shift)
Change in the competitive situation
If there are suddenly many more providers than you and Dori KG, the offer is also increased. A sudden external increase leads to an increase in quantity for the same price.(Right shift) If, on the other hand, there is a wave of bankruptcies and there are only a few companies left in the market, the supply is reduced. (Left shift)
Subsidies & Taxes
If your GmbH is subsidized, you have more money and can therefore catch and sell more fish. (Right shift) However, if you have to pay more taxes to the state, it has the opposite effect. (Left shift)
For example, if a new fishing technique is established on the market, with which more fish can be caught in less time, the supply increases. (Right shift)
If you expect a boom in demand for fish because it is currently considered particularly healthy, then you will ramp up your production early. (Right shift) A negative future expectation, on the other hand, will ensure that you reduce the production volume. (Left shift)
Now imagine that you are at the said fish market. There are a total of two fish stalls. With both fishermen, selling fish is only worthwhile if the price is higher than two. As the price rises, so does the quantity offered by the two dealers. The supply function can be calculated for the individual companies as well as for the entire market. To the aggregated supply quantity To determine this, the sum of the individual market participants is simply formed. To simplify the calculation, it is a linear function. The negative slope corresponds to the quotient of delta p and delta x. The variable t corresponds to the y-axis intercept and is added. If you now insert an arbitrary supply quantity x, you get the corresponding price as a y value.
|Price in [€]||Quantity offered by Nemo GmbH||Amount offered by Dori KG||Aggregated supply quantity|
The result shows the dependence of the price on the aggregated market supply on the fish market. You should calculate the supply function as an example. The function intersects the y-axis at point (0,2). This means that the y-axis intercept (t) of the function is therefore 2. In addition, the price for each additional quantity unit x also rises by half a price unit.
This gives the supply function of the form:
Supply curve and marginal costs
You often come across the term in the waters of the supply function Marginal cost . In one Polypol there is strong competition without individual positions of power. With this type of market, the individual providers cannot therefore influence the market price alone. In this particular case, every additional unit produced is worthwhile for the sellers until the marginal costs are equal to the market price. From this it follows: In the case of perfect competition (Polypol), the aggregated supply curve therefore corresponds exactly to the aggregated marginal cost curve. Since the marginal costs usually rise, the supply curve also rises.
Supply and demand function
The supply curve shows the amount offered by sellers on the market as a function of the price. In contrast to this, the demand curve indicates the amount of a good that is demanded by customers. When prices rise, demand falls. Conversely, the quantity demanded increases when the price drops. If you want to know how to calculate the demand function and how external factors affect the demand curve, watch our video now.
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