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Table of Contents

  1. Topic pack - Microeconomics - introduction
  2. 1.1 Competitive Markets: Demand and Supply
  3. 1.1 Competitive Markets: Demand and Supply - notes
    1. The nature of markets
    2. Types of markets
    3. Market structure
    4. Spectrum of competition
    5. Demand
    6. The law of demand
    7. Individual and market demand
    8. Non-price determinants of demand
    9. Movements along the demand curve
    10. Shifts in the demand curve
    11. Example - shifts and movements along a demand curve
    12. Exceptions to the normal law of demand
    13. Linear demand functions
    14. Linear demand functions - example
    15. The law of supply
    16. Non-price determinants of supply
    17. Movements along the supply curve
    18. Shifts in the supply curve
    19. Shifts and moves of supply curve
    20. The real supply curve?
    21. Linear supply functions
    22. Linear supply functions - example
    23. Market equilibrium
    24. Market equilibrium - notes
    25. Excess demand and excess supply
    26. Example 1 - the market for DVD players
    27. Example 2 - the market for fish
    28. Applications of demand and supply
    29. Calculating market equilibrium
    30. Calculating equilibrium - example
    31. Scarcity and choice
    32. Choice and opportunity cost
    33. Price signalling
    34. Market efficiency - consumer surplus
    35. Market efficiency - producer surplus
    36. Allocative efficiency
  4. 1.1 Competitive markets - questions
  5. 1.1 Competitive markets - simulations and activities
  6. 1.2 Elasticities
  7. 1.2 Elasticities - notes
  8. Section 1.2 Elasticities - questions
  9. Section 1.2 Elasticities - simulations and activities
  10. 1.3 Government intervention
  11. 1.3 Government Intervention - notes
  12. 1.3 Government intervention - questions
  13. 1.3 Government intervention - simulations and activities
  14. 1.4 Market failure
  15. 1.4 Market failure - notes
  16. Section 1.4 Market failure - questions
  17. Section 1.4 Market failure - simulations and activities
  18. 1.5 Theory of the firm
  19. 1.5 Theory of the firm - notes (HL only)
  20. Section 1.5 Theory of the firm - questions
  21. Section 1.5 Theory of the firm - simulations and activities
  22. Print View

The real supply curve?

The supply curve is usually drawn as an upwards (left to right) sloping curve. This implies that as price rises, so will the supply (Law of Supply). This further supposes that the response time for the supplier is zero. In many cases this is far from the case. If it was, then supermarket shelves would never be out of stock of the item you want! Consider the market for houses in a region illustrated in Figure 1 below.


Figure 1 Supply of houses

Builders are constructing and selling 'Q' houses per month at present at price 'P'. Suddenly demand increases significantly, as a government department is moving a capital city office there. What can be done? Not much, at least in the next few months.

Supply is essentially fixed at Q, regardless of demand. The supply curve is a vertical line. Prices will be put up by the developers if they think it worthwhile - in our diagram prices have risen to P1.

housing_new_buildSupply will take time to react to the new situation. They need land and planning permission and this can take months or years to organise. It will then take anything from 6 months to a year to build the house itself.

Figure 2 Increase in supply

Now think about the supply of things like CIVIL AIRCRAFT, AGRICULTURAL PRODUCTS and FOREIGN HOLIDAYS.