Economics (the law of demand and supply) Essay Example | Topics and Well Written Essays - 1500 words

Economics (the law of demand and supply) - Essay Example The price that people are willing to pay for a certain product correlates with the quantity of goods supplied are supplied by the suppliers in the market. In economic terms, the law of supply states that the price of the product plays a pivotal role in determining the amount of goods that can be produced at a certain period since this is what people will be willing to buy at that moment. Thus, the law of supply is directly related to the price of the product given that it shapes the behaviour of suppliers. The relationship between the price of the product and the quantity supplied can be graphically illustrated using graphs called supply curves. As going to be explained, it can be seen that there is a movement along the supply curve as well as a shift in position of the same supply curve to the left or to the right as a result of various reasons. As such, this essay seeks to evaluate the main difference between movement along the supply curve as well as a shift in position of the sup ply curve. Various factors that can contribute to the shift in the supply curve are also going to be outlined and discussed in detail. According to Kotler and Armstrong (2004), a supply curve is used to show the quantity of products that can be supplied into the market at a particular price. This curve is diagrammatically presented in an upward slope where each point along the slope depicts the price of the goods and the quantity supplied at that particular moment.... If the price is high, this also entails that the level of supply is also high since the producers will be willing to supply more which is likely to result in the generation of more revenue which constitutes the basics of every business. As such, there is an upward or downward movement along the supply curve as shown in Figure 1 below. Figure 1 Source: http://www.investopedia.com/university/economics/economics3.asp As illustrated in the graph above, points A, B and C are showing the relationship between the price of the product and its supply. An upward movement along the supply curve from point B to C shows that an increase in the price of the product also means an increase in supply. It can be seen that P2 is lower that P3 while at the same time Q2 is lower than Q3. Price is the major determinant of the movements along the supply curve. The movement can also be downward where lower prices will mean the quantity supplied is low as well. The higher the price, the higher the products l ikely to be supplied given that more revenue will be generated as a result of high prices. On the other hand, a shift in the supply curve occurs when there is a change which is parallel to the original position of the supply curve. This shift can be on the left side or right side of the original supply curve. When this shift occurs, the price of the product remains the same (Netmba, 2010). There are other variables which are different from price change that can cause the supply curve to shift either to the left or right side of the original supply curve. For instance, an improvement in manufacturing technology can lead to a shift in the supply curve. There are also various factors that can cause the supply curve to shift as