OMTEX CLASSES: There is direct relationship between price and quantity supplied.
The demand curve shows the quantity of a specific product that individuals This curve shows a direct relationship between price and quantity. Direct relationship - if prices are expected to rise, production will increase Direct relationship - equilibrium will increase and so will quantity. In other words, more quantity of a commodity is offered for sale at a higher price and less quantity is offered for sale at a lower price. So supply of a commodity is.
If you are asked to construct graphs, and to show a knowledge of graphing by choosing variables yourself, choose carefully what you decide to study. Here is a good example of a difficulty to avoid. Could you, for example, show a graphical relationship between good looks and high intelligence? I don't think so. First of all, you would have a tough time quantifying good looks though some social science researchers have tried!
Intelligence is even harder to quantify, especially given the possible cultural bias to most of our exams and tests.
- Law of supply
- Economics for Business Decisions/Theory of Demand and Supply
- Law of supply
Finally, I doubt if you could ever find a connection between the two variables; there may not be any. Choose variables that are quantifiable. Height and weight, caloric intake and weight, weight and blood pressure, are excellent personal examples. The supply and demand for oil in Canada, the Canadian interest rate and planned aggregate expenditure, and the Canadian inflation rate during the past forty years are all quantifiable economic variables.
You also need to understand how to plot sets of coordinate points on the plane of the graph in order to show relationships between two variables. One set of coordinates specify a point on the plane of a graph which is the space above the x-axis, and to the right of the y-axis. For example, when we put together the x and y axes with a common origin, we have a series of x,y values for any set of data which can be plotted by a line which connects the coordinate points all the x,y points on the plane.
Such a point can be expressed inside brackets with x first and y second, or 10,1. A set of such paired observation points on a line or curve which slopes from the lower left of the plane to the upper right would be a positive, direct relationship. A set of paired observation or coordinate points on a line that slopes from the upper left of the plane to the lower right is a negative or indirect relationship.
Working from a Table to a Graph Figures 5 and 6 present us with a table, or a list of related numbers, for two variables, the price of a T-shirt, and the quantity purchased per week in a store.
Note the series of paired observation points I through N, which specify the quantity demanded x-axis, reflecting the second column of data in relation to the price y-axis, reflecting first column of data. See that by plotting each of the paired observation points I through N, and then connecting them with a line or curve, we have a downward sloping line from upper left of the plane to the lower right, a negative or inverse relationship.
We have now illustrated that as price declines, the number of T-shirts demanded or sought increases.
Or, we could say reading from the bottom, as the price of T-shirts increases, the quantity demanded decreases. We have stated here, and illustrated graphically, the Law of Demand in economics. Now we can turn to the Law of Supply. The positive relationship of supply is aptly illustrated in the table and graph of Figure 7.
Note from the first two columns of the table that as the price of shoes increases, shoe producers are prepared to provide more and more goods to this market. The converse also applies, as the price that consumers are willing to pay for a pair of shoes declines, the less interested are shoe producers in providing shoes to this market. The x,y points are specified as A through to E.
When the five points are transferred to the graph, we have a curve that slopes from the lower left of the plane to the upper right. We have illustrated that supply involves a positive relationship between price and quantity supplied, and we have elaborated the Law of Supply. Now, you should have a good grasp of the fundamental graphing operations necessary to understand the basics of microeconomics, and certain topics in macroeconomics.
Many other macroeconomics variables can be expressed in graph form such as the price level and real GDP demanded, average wage rates and real GDP, inflation rates and real GDP, and the price of oil and the demand for, or supply of, the product. Don't worry if at first you don't understand a graph when you look at it in your text; some involve more complicated relationships. You will understand a relationship more fully when you study the tabular data that often accompanies the graph as shown in Figures 5 and 7or the material in which the author elaborates on the variables and relationships being studied.
Gentle Slopes When you have been out running or jogging, have you ever tried, at your starting pace, to run up a steep hill?
If so, you will have a good intuitive grasp of the meaning of a slope of a line. You probably noticed your lungs starting to work much harder to provide you with extra oxygen for the blood. If you stopped to take your pulse, you would have found that your heart is pumping blood far faster through the body, probably at least twice as fast as your regular, resting rate. The greater the steepness of the slope, the greater the sensitivity and reaction of your body's heart and lungs to the extra work.
Slope has a lot to do with the sensitivity of variables to each other, since slope measures the response of one variable when there is a change in the other. The slope of a line is measured by units of rise on the vertical y-axis over units of run on the horizontal x-axis. A typical slope calculation is needed if you want to measure the reaction of consumers or producers to a change in the price of a product. The law of supply states that, ceteris paribus, as the price of a commodity rises falls its supply rises falls.
When this price- quantity relationship is plotted on a graph we get a supply curve that slopes upwards. Thus the law of supply can be explained by drawing a supply curve for a commodity.
Quantity Supplied and Price: Functional Relationship
To do this, we now illustrate the relationship between price and quantity supplied with the following hypothetical data for a producer of good X. The data can be presented either in the form of a schedule or a graph. The supply schedule shows the relationship between the quantity supplied and the price. It is a numerical tabulation that lists some prices and shows the quantity that will be offered for sale at each price.
Law of supply - Wikipedia
The supply schedule as shown here suggests that nothing would be offered for sale when price is Rs. If price rises to Rs. Each price- quantity combination is shown by a reference letter as t, u, v, etc. Gold ornaments, Diamonds, hair paintings. Higher the price of the good, greater will be the prestige of the buyer in the society and vice-versa.
When price falls, the commodity comes within the reach of lower class people and they tend to demand more because of demonstration effect. If people expect the price of good to rise in near future, they demand more even at higher price.
Quantity Supplied and Price: Functional Relationship
And if they expect the price to fall in near future, they demand less of it even at lower price. Thus more quantity of goods is demanded at rising prices and less quantity of goods is demanded at falling prices. This seems contrary to law of demand. These are special type of inferior goods named after Sir Robert Giffen. So there is direct relationship between price and demand. People increase preferences towards superior goods due to rise in their real income.