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32 CHAPTER 2 DEMAND AND SUPPLY ANALYSIS

Price (thousands of dollars) $35

$25

FIGURE 2.3 The U.S. $15
Demand Curve for Automobiles D
The law of demand holds in this 0 1.8 2.8 3.8
market because the demand curve Quantity (millions of automobiles per year)
slopes downward.

SUPPLY CURVES
market supply curve The curve labeled S in Figure 2.2 is the market supply curve for corn. It tells us the
A curve that shows us the total quantity of corn that suppliers of corn are willing to sell at different prices. For
total quantity of goods that example, the supply curve tells us that at a price of $3 per bushel, 9 billion bushels of
their suppliers are willing corn would be supplied in 2009, while at a price of $4 per bushel, 11 billion bushels
to sell at different prices.
would be supplied in that year.
The supply of corn in the United States comes primarily from corn farmers
around the country. The available supply in a given year consists of corn that is har-
vested in that year plus corn that has been stored from previous harvests. We should
think of the supply curve S as being constructed from the sum of the supply curves of
all individual suppliers of corn in the United States.
The supply curve slopes upward, indicating that at higher prices, suppliers of corn
are willing to offer more corn for sale than at lower prices. The positive relationship
law of supply The pos- between price and quantity supplied is known as the law of supply. Studies of market
itive relationship between supply curves confirm the positive relationship between the quantity supplied and the
price and quantity supplied, price, which is why we call the relationship a law.
when all other factors that As with demand, other factors besides price affect the quantity of a good that pro-
influence supply are held ducers will supply to the market. For example, the prices of factors of production—
fixed.
resources such as labor and raw materials that are used to produce the good—will
factors of production affect the quantity of the good that sellers are willing to supply. The prices of other
Resources such as labor goods that sellers produce could also affect the quantity supplied. For example, the
and raw materials that are supply of natural gas goes up when the price of oil goes up, because higher oil prices
used to produce a good.
spur more oil production, and natural gas is a by-product of oil. When we draw a sup-
ply curve like the one in Figure 2.2, we imagine that all these other factors that affect
the quantity supplied are held fixed.