key term - Quantity Supplied

Definition

Quantity supplied refers to the amount of a good or service that producers are willing and able to sell at a given price during a specific time period. It is a central concept in the theory of supply and demand, which explains how market equilibrium is determined.

5 Must Know Facts For Your Next Test

1. Quantity supplied is determined by factors such as the cost of production, technology, prices of related goods, and the number of sellers in the market.
2. An increase in the price of a good will lead to an increase in the quantity supplied, while a decrease in price will lead to a decrease in quantity supplied.
3. The quantity supplied is represented by the supply curve, which shows the relationship between price and the quantity producers are willing to sell.
4. In the context of changes in equilibrium price and quantity, an increase in quantity supplied will shift the supply curve to the right, leading to a decrease in the equilibrium price and an increase in the equilibrium quantity.
5. In the context of elasticity, a perfectly elastic supply curve (infinite elasticity) means that the quantity supplied is highly responsive to changes in price, while a perfectly inelastic supply curve (zero elasticity) means that the quantity supplied is unresponsive to changes in price.

Review Questions

• Explain how changes in the cost of production affect the quantity supplied of a good.
  • If the cost of production for a good decreases, producers will be willing and able to supply a greater quantity of the good at each price point. This will cause the supply curve to shift to the right, leading to an increase in the equilibrium quantity and a decrease in the equilibrium price. Conversely, an increase in production costs will shift the supply curve to the left, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price.
• Describe how the concept of quantity supplied relates to the four-step process of changes in equilibrium price and quantity.
  • The quantity supplied is a key component of the four-step process for analyzing changes in equilibrium price and quantity. In this process, an initial change in a market (such as a change in demand or supply) leads to a new equilibrium price and quantity. Specifically, an increase in quantity supplied will shift the supply curve to the right, leading to a decrease in the equilibrium price and an increase in the equilibrium quantity. Conversely, a decrease in quantity supplied will shift the supply curve to the left, resulting in an increase in the equilibrium price and a decrease in the equilibrium quantity.
• Evaluate how the concept of quantity supplied relates to the polar cases of elasticity and constant elasticity.
  • The concept of quantity supplied is closely linked to the elasticity of supply. In the polar case of perfectly elastic supply (infinite elasticity), the quantity supplied is highly responsive to changes in price, and producers are willing to sell any quantity at the given market price. Conversely, in the case of perfectly inelastic supply (zero elasticity), the quantity supplied is completely unresponsive to changes in price, as producers are willing to sell the same quantity regardless of the market price. In the case of constant elasticity, the responsiveness of quantity supplied to changes in price remains the same along the supply curve, allowing for predictable changes in quantity supplied based on price variations.

Related terms

Supply: The relationship between the price of a good or service and the quantity producers are willing and able to sell.

Demand: The relationship between the price of a good or service and the quantity consumers are willing and able to buy.

Market Equilibrium:

The price and quantity where the amount supplied equals the amount demanded, representing a stable market condition.