Supply and Demand Schedules

The relationship between the number of goods supplied by the producer and the current market price is called the supply schedule. It is represented graphically by a curve. As the supply tends to be proportional to the price, supply curves are nearly always sloping upwards.

Thanks to the law of diminishing marginal returns, the supply curve’s slope is almost always increasingly upwards sloping. Due to the equi-marginal principle, a producer’s supply curve is almost always equal to the marginal cost curve of the producer. So an entire market’s supply curve can be seen as the sum of the individual procurers’ marginal cost curves.

It is true that on occasion, the supply curve will not slope in an upward fashion. One example of this is the backward bending supply curve of labor. As the wage of a worker goes up, the worker will generally be more willing to work harder and longer hours, as the increased wage makes the marginal utility of working go up – while also increasing the opportunity cost of not working.

If the wage of the worker gets too high, however, then the law of diminishing marginal utility might be experienced in relation to the worker’s wages. Since the worker is making a lot of money as it is, then further raises do not mean much to him. As a result, the worker does not work quite as hard, as he would rather spend his time relaxing rather than working. In non labor markets, the backwards bending supply curve has also appeared, such as in the oil sector. For example, shortly after the 1973 oil crisis, a lot o foil exporting countries decreased their domestic oil production as a result of oil’s sky rocketing prices.

The supply curve for utility production companies also tends to be unconventional. The supply curve of these firms tends to be depicted as a constant owing to the fact that the vast majority of their costs come in the form of fixed costs.

Another variance from the supply curve norm take places in those instances where child labor is involved – typically in third world countries. Supply increases as wage increases, until it gets to the point that the child is no longer allowed to work or stops working in order to focus on education. The supply in this case does not increase as the wage increases, until it gets to the point where the wage will be high enough to offset these concerns. In the case of normal demand curves, this might result in two stable equilibrium points – one for the high wage and one for the low wage.

Demand, on the other hand, can be thought of as economic need that is backed by buying power. Thus, the demand schedule, which is depicted on graphs as the demand curve, represents the amount of an item that purchasers are willing and able to buy at different prices, assuming that non price related factors remain stable. Demand, unlike supply, is nearly always sloping in a downward direction, because as the price goes up, customers will not buy as many units of the item. Demand curves are on an equal basis to marginal utility curves, just as supply curves are equal to marginal cost curves.

The primary determinants of demand include the item’s price, the income level, one’s personal tastes, the price of substitute items, and the price of free items.

The shape of the aggregate demand curve might be concave or convex, depending on the distribution of income.

On rare occasions, the demand curve might slope upwards. A good whose demand curve slopes upwards is called a Veblen good or a Giffen good.

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