Supply Function

Inferior, Normal and Superior Goods

A change in income will usually shift the demand function. When a good is a "normal" good, there is a positive relationship between the change in income and change in demand; an increase in income will increase (shift the demand to the right) demand. A decrease in income will decrease (shift the demand to the left) demand.

An inferior good is characterized by an inverse or negative relationship between the change in income and change in demand. An increase in the income will decrease demand while a decrease in income will increase demand.

A superior good is a special case of the normal good. There is a positive relationship between a change in income and the change in demand but, the percentage change in the demand is greater than the percentage change in income.

A supply functionis a model that represents the behavior of the producers and/or sellers in a market.

Q_XS = fS(P_X, P_INPUTS, technology, number of sellers, laws, taxes, expectations... NS)

P_X = price of the good,

P_INPUTS = prices of the inputs (factors of production used)

Technology is the method of production (a production function),

laws and regulations may impose more costly methods of production

taxes and subsidies alter the costs of production

NS represents the number of sellers in the market.

Like the demand function, supply can be viewed from two perspectives:

Supply is a schedule of quantities that will be produced and offered for sale at a schedule of prices in a given time period, ceteris paribus.

A supply function can be viewed as the minimum prices sellers are willing to accept for given quantities of output, ceteris paribus.

Generally, it is assumed that there is a positive relationship between the price of the good and the quantity offered for sale.

Дата добавления: 2014-01-11