Change in quantity supplied

Given the supply function, Qxs = fs(Px, Pinputs, Tech,...), a change in the price of the good (PX) will be reflected as a move along a supply function. In Figures as the price increases the quantity supplied increases too. This can be visualized as a move from point to point B on the supply function.

A change in quantity supplied is a movement along a supply function that is “caused” by a change in the price of the good.

P s2_x

P₁ s1 s

s s2

0 q₁ q_x

Change in Supply

Given the supply function, Qxs = fs(Px, Pinputs, Tech,..., #S), a change in the prices of inputs (Pinputs) or technology will shift the supply function. A shift of the supply function to the right will be called an increase in supply. This means that at each possible price, a greater quantity will be offered for sale. In an equation form, an increase in supply can be shown by an increase in the quantity intercept. A decrease in supply is a shift to the left; at each possible price a smaller quantity is offered for sale. In an equation this is shown as a decrease in the intercept.

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The New Palgrave: A Dictionary or Economics identifies 3 concepts of equilibrium:

• Equilibrium as a “balance of forces”

• Equilibrium as “a point from which there is no endogenous ‘tendency to change’”

• Equilibrium as an “ outcome which any given economic process might be said to be ‘tending towards’, as in the idea that competitive processes tend to produce determinant outcomes.””

In Neoclassical microeconomics, “equilibrium” is perceived as the condition where the quantity demanded is equal to the quantity supplied; the behavior of all potential buyers is coordinated with the behavior of all potential sellers.

There is an equilibrium price that equates or balances the amount that agents want to buy with the amount that is produced and offered for sale (at that price). There are no forces (from buyers or sellers) that will alter the equilibrium price or equilibrium quantity.

Graphically, economists represent a market equilibrium as the intersection of the demand and supply functions. This is shown in Figure.

P_x

D Surpluses S

Р₁

Ре E

Р₂

S Deficit D

0 Q_A Qе Q_B Q_x