Answer to Question #127003 in Microeconomics for Ahmad Rafique

Question

Make up an example of a monthly supply schedule for pizza, and graph
the implied supply curve. Give an example of something that would shift
this supply curve, and briefly explain your reasoning. Would a change in the price of pizza
shift this supply curve

Answer 1

Monthly Supply Schedule

A supply schedule is a table that show relationships between price of pizza and quantity supplied. An increase in price increases the profitability of pizza and hence pizza suppliers increase quantity supplied to reap maximum profits. As a result, a supply schedule proves the existence of a positive correlation between price of pizza and quantity of pizza supplied, ceteris paribus.

Example schedule is shown below.

As shown on the schedule, price of pizza and quantity of pizza supplied are positively related, ceteris paribus.

Supply Curve

A supply curve is a graph of a supply schedule. Price of pizza is plotted on the vertical axis whereas quantity supplied is plotted the horizontal axis. Pairs of price and quantity supplied are plotted together and joined by a straight line to produce a supply curve.

The graph of the above supply schedule is shown below.

As shown on the graph, the supply curve is upward sloping due to the positive correlation between price and quantity of pizza supplied. It proves the law of supply.

Shift in Supply Curve

An Increase in the number of pizza manufactures will shift the supply curve upwards and rightwards. Pizza manufacturers may increase as a result of price increases and the profitability of pizza, maybe due to an increase in the number of people who eat pizza who push demand of pizza upwards.

An increase in the number of pizza manufacturers increases the quantity of pizza supplied in the market at each and every possible price. The reason is that the market supply curve of pizza is an aggregation of all individual pizza manufacturers' supply schedules. As manufacturers increase, the same are the quantities supplied at each and every possible price. The quantity supplied in the market increases. This induces a rightward and upward shift of the whole supply curve - increase in supply.

Change in price of pizza

A price change in pizza will not shift the supply curve of pizza.

A change in price only results in a change in quantity supplied at that particular price. Quantity supplied and not supply is affected. Thus, a price change will cause a movement up and down a supply curve - extension and contractions in supply.

An increase in price causes an extension in supply; quantity supplied increases, whereas a price decrease results in a contraction in supply; quantity supplied decreases.

Finally, amongst all factors affecting supply, price is the only factor that induces a movement along the supply curve; all other factors cause a shift in supply.