Quantity Supplied and Price
We begin by holding all other variables constant and ask, “How do we
expect the total quantity of a product supplied to vary with its own price?”
A basic economic hypothesis is that the price of the product and the quantity supplied are
related positively, other things being equal. That is, the higher the product’s own price, the
more its producers will supply; the lower the price, the less its producers will supply.In later chapters we will derive this hypothesis as a prediction from more
basic assumptions about the behaviour of individual profit-maximizing
firms. For now we simply note that as the product’s price rises, producing
and selling this product becomes a more profitable activity. Firms
interested in increasing their profit will therefore choose to increase their
supply of the product.