To date we have drawn supply curves with an upward slope. Is this a reasonable representation of supply in view of what is frequently observed in markets? We suggested earlier that the various producers of a particular good or service may have different levels of efficiency. If so, only the more efficient producers can make a profit at a low price, whereas at higher prices more producers or suppliers enter the market – producers who may not be as lean and efficient as those who can survive in a lower-price environment. This view of the world yields an upward-sloping supply curve, although there are other perspectives on the supply curve’s slope.
Frequently producers simply choose a price and let buyers purchase as much as they want at that price. This is the practice of most retailers. For example, the price of Samsung’s Galaxy is typically fixed, no matter how many are purchased – and tens of millions are sometimes sold at a fixed price when a new model is launched. Apple sets a price, and buyers purchase as many as they desire at that price.
In yet other situations supply is fixed. This happens in auctions, and bidders at the auction simply determine the price to be paid. At a real estate auction a fixed number of homes are put on the market and prices are determined by the bidding process.
Regardless of the type of market we encounter, however, it is safe to assume that supply curves do not slope downward. So, for the moment, we adopt the stance that supply curves are generally upward sloping – somewhere between the extremes of being vertical or horizontal – as we have drawn them to this point.
Next, we examine those other influences that underlie supply curves. Technology, input costs, the prices of competing goods, expectations and the number of suppliers are the most important.
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