The Supply Curve

In this video, we explore the relationship between price and quantity supplied. Why does the supply curve slope upward? The supply curve shows how much of a good

In this video, we explore the relationship between price and quantity supplied. Why does the supply curve slope upward? The supply curve shows how much of a good suppliers are willing to supply at different prices. For instance, oil suppliers in Alaska and Saudi Arabia face different costs of extraction, affecting the price at which they are willing to supply oil.

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Show 1 Answer (Answer provided by Alex Tabarrok)
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Yes, a historical quirk. Demand and supply graphs and functions were used by both Cournot (1838) and then Marshall in his famous principles text (1890). Cournot thought of price as the independent variable and put price on the horizontal axis as per convention. Marshall in contrast thought of quantity as the independent variable and put quantity on the horizontal axis. Each had the "correct" diagram for the story they told. Economists overall, however, settled on Cournot's price story but kept Marshall's graph! Thus, the supply-demand graph visual and story don't look quite right to an engineer or physicist.

As we discuss more in the equilibrium video it is in fact legitimate to think of either price or quantity as the independent variable. In fact, both perspectives are useful because this is a simultaneous equation system so both stories are going on at the same time.

Now for the most important point. Can you safely skip this stuff? Absolutely not! Supply and demand are critical. Keep in mind that the independent variable on horizontal axis is just a convention. The convention in economics may be slightly odd to someone used to a different convention but that is all it is, different conventions or language and it is key that you learn the language of economics even if it seems a bit odd at first.

> In fact, both perspectives are useful because this is a simultaneous equation system so both stories are going on at the same time.

Ah, thank you, that makes it quite a bit easier.

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