Supply, Demand and Equilibrium
The Law of Supply
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The Law of Supply
The Law of Supply states that as the price of a product rises, then the qaunitity supplied rises also. Quantity supplied refers to buisness's willingness to produce a good or service. An easy way of remembering this law is to think from the perspective of a business or firm; the higher the price per good, means that firms are willing to produce a larger qaunitity of goods in order to receive more profit. The opposite occurs when the price of goods falls.
The Effects in Changes in Price
When there is a change in the price of the good, then there will be a movement along the supply curve.
As shown by the model...
An increase in price will increase the quantity supplied, as producers are willing to produce more goods if they are going to receive a higher price per good. This will cause the equilibrium to shift to point (Q1, P1) on the model, demonstrating an expansion of the market.
A decrease in price will decrease the quantity demanded, because, producers are less willing to produce goods for a lower price. This will cause the equilibrium to shift to point (Q1, P1) on the model, demonstrating a contraction of the market.