Glamor Economics

Chapter 21

Chapter 4, Section 2 How much to produce, the market has the final say——Supply

In 1986, the discovery of AIDS caused panic in the world, and in a blink of an eye, almost all latex gloves in the United States were out of stock.Everyone is afraid of being infected by the virus. American medical staff put on two or three layers of gloves to enhance protection. Even the police will never attack suspects without latex gloves.As a result, the demand for latex gloves in the international market was in short supply for a while, and the price rose.After this news was disclosed by a newspaper in our country, many enterprises all over the country heard the news and started production one after another.However, most enterprises are built blindly without knowing the size of the international demand or the scale of domestic production capacity.For example, in Zhangjiagang City, Jiangsu Province, by the spring of 1988, 77 latex glove production lines had been built, which was in the ascendant.As a result, these behaviors that do not pay attention to the relationship between supply and demand of commodities will soon be mercilessly punished by the laws of market economy. In the second half of 1988, the international latex glove market was weak.According to the "Market News" report, Jiangsu alone has a backlog of 5800 tons of latex raw materials and 22.5 pairs of finished gloves.

The above cases vividly illustrate the law of supply and demand in the market.In economics, supply refers to the quantity of goods that producers are willing and able to supply at each price level in a certain period of time, including newly supplied and stocked items.In general, supply in a market involves the conditions under which firms are willing to produce and sell a good.For example, the supply of tomatoes reflects the number of tomatoes sold at each price in the market.For manufacturers, the main purpose of producers to provide goods is for profit.For example, motorcycles were all the rage in the 20s, and many manufacturers invested in the production of motorcycles when it was profitable; when the motorcycle market was saturated and profit margins fell, manufacturers switched to producing cars or entered other industries one after another.Another important factor affecting the supply of manufacturers is the cost of products.When the cost of producing a good is low relative to the market price, it is profitable for producers to supply large quantities of that good.For example, in the 90s, oil prices rose sharply, raising energy bills for manufacturers, which raised their production costs, which in turn reduced their supply of products.

The quantity supplied increases as the price rises and decreases as the price falls, that is, the quantity supplied of a certain item is positively correlated with the price.This relationship between price and quantity supplied is known as the "law of supply."

The supply curve shows the relationship between price and output.Supply refers to the total amount of products that manufacturers in the whole society are willing to supply at a certain price level.The total quantity of products that all firms are willing to supply depends on the prices they receive for supplying these products and the costs of labor and other factors of production that they must pay to produce them.

When the water price is 1 cent, the water company is only willing to supply 20 barrels of tap water; when the water price is 5 cents, the water company is willing to supply 110 million barrels of tap water; when the water price is 6 cents, the water company is willing to supply 120 million barrels of tap water, see the table below for detailed data.

Relationship between water price and supply in a water company

Price (cents) 1234567
Supply (million barrels) 206080100110120130
We convert this information into a graph, the vertical axis OP represents the possible water price.The horizontal axis OQ represents the amount of water that the water company is willing to supply at different prices.By marking the corresponding numbers in the table on the graph and connecting them, we get a curve S that slopes upward to the right, which economists call a "supply curve."

[links to related words]

Overproduction refers to the economic phenomenon in which the total production of social commodities greatly exceeds the demand with the ability to pay.

(End of this chapter)