Civil Engineering Reference
In-Depth Information
Using the labelled axes in
Figure 3.2
can you determine what the pattern of
supply in relation to price would look like? To rephrase the question in more formal
terms, can you plot the
supply schedule
? Clearly, as the price of a commodity rises
the quantity supplied will increase and as the price falls the quantity supplied will
decrease. That is, from the supply-side there is a
direct relationship
between the
price per unit and quantity supplied: an increase in price usually leads to an increase
in the quantity supplied. This is because suppliers seek to maximise their profit and
get the biggest possible return for their efforts.
As suggested, these basic principles seem easier to appreciate when plotted on a
graph. See if you agree by considering
Figure 3.3
.
Figure 3.3
A simple supply and demand diagram
The demand curve displays the fact that the quantity demanded falls as the price rises.
The supply curve displays the converse relationship: that the quantity supplied rises
as the price rises.
Supply
P
Demand
Q
Quantity demanded & supplied per period of time
Three Qualifying Remarks
Economists have devised various methodological procedures to give their statements
rigour and academic value. Three of these small but important techniques need to be
highlighted especially as textbooks often fail to constantly enforce them.
PER PERIOD OF TIME
On the horizontal axis of
Figures 3.2
and
3.3
we ended the statement with the
qualification
per period of time
. This is to highlight that supply or demand is a
