Concept: Law of Supply
Law of supply stated that the quantity supplied of a good rises when the price of the good rises while other things equal. This shows that the quantity supplied is positively related to the price of the good. The supply curve is used to relate price of a good and the quantity supplied and the curve is upward sloping. The supply curve shows how much producers of the good offer for sale at any given price, holding constant all the other factors beyond price that influence producers’ decisions about how much to sell. This relationship can change over time, which is represented by a shift in the supply curve. Any change that raises quantity supplied at every price shifts the supply curve to the right and is called an increase in supply. Similarly, any change that reduces the quantity supplied at every price shifts the supply curve to the left and is called a decrease in supply. There are many variables that can shift the supply curve. Some of the most important are input prices, technology, expectations and number of sellers. When one of these other variables changes, the supply curve shifts. Economic Analysis:
Price of Fuel
Supply Curve, S1
Supply Curve, S2 Increase in supply...
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