Module 6
Supply and Demand:
Supply and Equilibrium
The Supply Curve
Some parts of the world are especially well suited to growing coffee beans, which is why,
as the lyrics of an old song put it, “There’s an awful lot of coffee in Brazil.” But even in
Brazil, some land is better suited to growing coffee than other land. Whether Brazilian
farmers restrict their coffee-growing to only the most ideal locations or expand it to less
suitable land depends on the price they expect to get for their beans. Moreover, there are
many other areas in the world where coffee beans could be grown—such as Madagascar
and Vietnam. Whether farmers there actually grow coffee depends, again, on the price.
So just as the quantity of coffee beans that consumers want to buy depends on the
price they have to pay, the quantity that producers are willing to produce and sell—the
quantity supplied—depends on the price they are offered.
The Supply Schedule and the Supply Curve
The table in Figure 6.1 on the next page shows how the quantity of coffee beans made
available varies with the price—that is, it shows a hypothetical supply schedulefor cof-
fee beans.
A supply schedule works the same way as the demand schedule shown in Figure 5.1:
in this case, the table shows the quantity of coffee beans farmers are willing to sell at
different prices. At a price of $0.50 per pound, farmers are willing to sell only 8 billion
pounds of coffee beans per year. At $0.75 per pound, they’re willing to sell 9.1 billion
pounds. At $1, they’re willing to sell 10 billion pounds, and so on.
In the same way that a demand schedule can be represented graphically by a demand
curve, a supply schedule can be represented by a supply curve,as shown in Figure 6.1.
Each point on the curve represents an entry from the table.
Suppose that the price of coffee beans rises from $1 to $1.25; we can see that the
quantity of coffee beans farmers are willing to sell rises from 10 billion to 10.7 billion
pounds. This is the normal situation for a supply curve, reflecting the general proposi-
tion that a higher price leads to a higher quantity supplied. Some economists refer to
What you will learn
in this Module:
- What the supply curve is
- The difference between
movements along the supply
curve and changes in supply - The factors that shift the
supply curve - How supply and demand
curves determine a market’s
equilibrium price and
equilibrium quantity - In the case of a shortage
or surplus, how price
moves the market back
to equilibrium
module 6 Supply and Demand: Supply and Equilibrium 59
Thequantity suppliedis the actual amount
of a good or service producers are willing to
sell at some specific price.
Asupply schedule shows how much of a
good or service producers will supply at
different prices.
Asupply curveshows the relationship
between quantity supplied and price.