Page 101 - Krugmans Economics for AP Text Book_Neat

What you will learn
in this Module:

Module 6 • What the supply curve is

• The difference between
Supply and Demand: movements along the supply
curve and changes in supply
• The factors that shift the
supply curve
Supply and Equilibrium • How supply and demand

curves determine a market’s
equilibrium price and
equilibrium quantity
The Supply Curve • In the case of a shortage
or surplus, how price
Some parts of the world are especially well suited to growing coffee beans, which is why, moves the market back
as the lyrics of an old song put it, “There’s an awful lot of coffee in Brazil.” But even in to equilibrium
Brazil, some land is better suited to growing coffee than other land. Whether Brazilian
farmers restrict their coffee-growing to only the most ideal locations or expand it to less
suitable land depends on the price they expect to get for their beans. Moreover, there are
many other areas in the world where coffee beans could be grown—such as Madagascar
and Vietnam. Whether farmers there actually grow coffee depends, again, on the price.
So just as the quantity of coffee beans that consumers want to buy depends on the
price they have to pay, the quantity that producers are willing to produce and sell—the
quantity supplied—depends on the price they are offered.

The Supply Schedule and the Supply Curve

The table in Figure 6.1 on the next page shows how the quantity of coffee beans made
available varies with the price—that is, it shows a hypothetical supply schedule for cof-
fee beans.
A supply schedule works the same way as the demand schedule shown in Figure 5.1:
in this case, the table shows the quantity of coffee beans farmers are willing to sell at
different prices. At a price of $0.50 per pound, farmers are willing to sell only 8 billion
pounds of coffee beans per year. At $0.75 per pound, they’re willing to sell 9.1 billion
pounds. At $1, they’re willing to sell 10 billion pounds, and so on. The quantity supplied is the actual amount
In the same way that a demand schedule can be represented graphically by a demand of a good or service producers are willing to
curve, a supply schedule can be represented by a supply curve, as shown in Figure 6.1. sell at some specific price.
Each point on the curve represents an entry from the table. A supply schedule shows how much of a
Suppose that the price of coffee beans rises from $1 to $1.25; we can see that the good or service producers will supply at
quantity of coffee beans farmers are willing to sell rises from 10 billion to 10.7 billion different prices.
pounds. This is the normal situation for a supply curve, reflecting the general proposi- A supply curve shows the relationship
tion that a higher price leads to a higher quantity supplied. Some economists refer to between quantity supplied and price.

module 6 Supply and Demand: Supply and Equilibrium 59