Why is supply positively sloped

A supply schedule shows the relationship between price and planned supply over a hypothetical range of prices. For example, this supply schedule shows how many cans of cola would be supplied by a school or college canteen in a single week. The higher the price, the greater the quantity supplied. A supply curve is derived from a supply schedule.

The upward slope of a supply curve illustrates the direct relationship between supply decisions and price. In this case, the supplier of cola would supply more cans at 80p compared with 60p. There are a number of explanations of this relationship, including the law of diminishing marginal returns.

The law of diminishing marginal returns explains what happens to the output of products when a firm uses more variable inputs while keeping a least one factor of production fixed. Real capital, such as buildings, machinery, and equipment, is usually the factor kept fixed when demonstrating this principle.

Economic theory predicts that, when employing these extra variable factors, such as labour, the marginal returns additional output from each extra unit of input will eventually diminish.

Take, for example, a hypothetical firm that has a factory in which computers are assembled. The machinery is fixed, and extra workers can be hired to increase the output of assembled computers. At first, the addition of extra workers creates a significant benefit because it becomes possible to divide up the labour, and for workers to specialise in undertaking one task.

Initially, there are increasing marginal returns to each additional worker. Gradually, each additional worker contributes less than the one before so that total output of computers continues to rise, but at a decreasing rate.

The falling marginal returns from each successive worker leads to a rise in the cost of using them. Firms need to sell their extra output at a higher price so that they can pay the higher marginal cost of production. Hence, decisions to supply are largely determined by the marginal cost of production.

The supply curve slopes upward, reflecting the higher price needed to cover the higher marginal cost of production.

The higher marginal cost arises because of diminishing marginal returns to the variable factors. Go to shifts in supply. Stagflation is a combination of high inflation, high unemployment, and stagnant economic growth. Because inflation isn't supposed to occur in a weak economy, stagflation is an unnatural situation. Slow growth prevents inflation in a normal The laissez-faire economic theory centers on the restriction of government intervention in the economy.

According to laissez-faire economics, the economy is at its strongest when the government protects individuals' rights but otherwise doesn't intervene. What Is Adverse Selection? Adverse selection is a term that describes the presence of unequal information between buyers and sellers, distorting the market and creating conditions that can lead to an economic collapse.

It develops Explaining The K-Shaped Economic Recovery from Covid A K-shaped recovery exists post-recession where various segments of the economy recover at their own rates or levels, as opposed to a uniform recovery where each industry takes the same The concepts of supply and demand form the basis of every initial Economics lecture, as well the basis of a market-based economy. Supply refers to the amount of products or services offered by the market, while demand refers to the amount buyers are willing to purchase at a certain price.

Both supply and demand can be represented visually as curves on a graph — supply slopes upward, while demand slopes downward. The supply curve shows the lowest price at which a business will sell a product or service, and can be the difference between a successful business and a struggling one. In microeconomics — the field of economics concerned with the decision-making patterns of individual buyers and businesses — the law of demand states that when the cost of a product or good increases, demand for that product or service decreases and vice versa, when all other factors are equal.

When demand is represented visually on a graph, price is on the Y vertical axis and quantity is on the X horizontal axis. When price is high, demand is low, so the curve begins at the top of the Y axis. As price decreases, demand increases, causing the curve to fall as it moves outward along the X axis.

The downward-sloping demand curve reflects the maximum price that a consumer would pay for a product or service — also known as the reservation price — as well as the maximum amount of a product that a consumer would pay for a certain price. Demand curves also show consumer surplus, or the difference between the maximum cost a consumer is willing to pay and the actual market price, according to Thomas McGahagan at the University of Pittsburgh.