In order to develop a theory of how commodities get priced, we study the relationship between the quantity supplied of each commodity and that commodity’s own price. We start by holding all other influences constant and asking: How do we expect the quantity of a commodity supplied to vary with its own price? A basic hypothesis of economics is that, for many commodities, the price of the commodity and the quantity that will be supplied are related positivel y, other things being equal. That is to say, the higher the commodity’s own price, the more its producers will supply, and the lower the price, the less its producers will supply.
* The Supply Curve
The general relationship just discussed can be illustrated by a supply schedule, which shows the relationship between quantity supplied of a commodity and the price of the commodity, other things being equal. A supply schedule is analogous to a demand schedule; the former shows what producers would be willing to sell, whereas the latter shows what households would be willing to buy, at alternative prices of the commodity. A supply curve,the graphical representation of the supply schedule is illustrated above. Each point of the supply curve represents a specific pricequantity combination; however, the whole curve shows something more. The supply curve represents the relationship between quantity supplied and price, other things being equal; its positive slope indicates that quantity supplied varies in the same direction as does price. When the price moves from P1 to P2 (with P2>P1), the quantity supplied rises from Q1 to Q2. When economists speak of the conditions of supply as being given or known, they are not referring just to the particular quantity being supplied at the moment, that is, not to just one point on the supply curve. Instead, they are referring to the entire supply curve, to the complete relationship between desired sales and all possible alternative prices of the commodity. Supply refers to the entire relationship between the quantity supplied of a commodity and the price of that commodity, other things being equal. A single point on the supply curve refers to the quantity supplied at that price.
