With the holiday season quickly approaching, I choose to analyze an article which illustrates why some of the "hot" items may be in rather low supply. Many assume the supplier would supply more to further increase profits. Price and quantity exchanged in the market is a bit more complex than the previous statement . We will start off the analysis by looking at the law of supply.
The law of supply is a basic economic principle that states firms are willing to supply larger quantities at higher prices. In retrospect, they will supply lesser quantities at lower prices. Supply is illustrated by an upward-sloping line due to this concept.
*Insert supply schedule here. talk about it
*insert supply example here. talk about it movmt along curve =change in Q supplied due to price, other things constant) (shift= change not due to price)
There are numerous factors that can change the amount of supply a firm offers such as: expectations, cost of inputs, government taxes, and technology advancements in terms of production techniques. The aforementioned factors are held constant for the law of supply to hold true.
Costs of production also plays a key role in the law of supply. Firms with high costs often fail to produce at lower prices. A firm will be realizing an economic loss when the price is less than their total average costs. Economic profit is realized when price is greater than average total costs. Zero economic profit occurs where price equals average total costs at the minimum point. Lastly, a firm will shutdown when price is less than its average variable costs.
*insert examples of graphs talk about
Now that we have taken a look at the law of demand, lets analyze the demand aspect of the market.
The law of demand states consumers are willing to purchase more at lower prices and less at higher prices. Like the law of supply, the law of demand also only holds true when certain assumptions are made. The two