Civil Engineering Reference
In-Depth Information
THE BASIC LAW OF SUPPLY
We have already encountered the basic idea of supply in
Chapter 3
and it might be
useful to review
Key Points 3.2
and
3.3.
The supply curve slopes upwards from left
to right, demonstrating that as price rises the quantity supplied rises and, conversely,
as price falls, the quantity supplied falls. This is the opposite of the relationship that
we saw for demand. The basic law of supply can be stated formally as:
the higher the price, the greater the quantity offered for sale, the lower the
price, the smaller the quantity offered for sale, all other things being held
constant.
The law of supply, therefore, tells us that the quantity supplied of a product is
positively (directly) related to that product's price, other things being equal. Or in
terms of the discussion above, the number of potential contractors interested in
bidding to supply a project will increase as the profit margin the client is prepared to
meet rises. This is displayed in
Figure 5.1.
Figure 5.1
The supply curve for an individual firm
The standard supply curve for most goods and services slopes upward from left to right.
The higher the price, the higher the quantity supplied (other things being equal).
Supply Curve
for 'n'
Quantity supplied of 'n'/month
The Market Supply Schedule
The incentives within a specific market - and the constraints faced - are roughly the
same for all suppliers. Each individual firm seeks to maximise its profits, and each
firm is subject to the law of increasing costs. As we noted in
Chapter 1
(see page 3),
