The Supply Curve
Marginal Revolution University・2 minutes read
A supply curve shows how suppliers respond to price changes, with quantity supplied increasing as prices rise due to different extraction costs. The slope of the curve indicates the need to utilize more expensive oil sources as prices go up, influencing oil well depths.
Insights
- The supply curve shows how suppliers adjust the amount of a good they are willing to provide based on price changes, highlighting the direct correlation between price and quantity supplied. This relationship is influenced by extraction costs, impacting the profitability of suppliers at different price levels.
- Price fluctuations prompt suppliers to enter or exit the market, as reflected in the supply curve's slope, which indicates the need to tap into more expensive oil sources as prices rise. This dynamic interaction underscores the crucial role of profitability in determining the extent of oil extraction.
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Recent questions
What does a supply curve show?
Quantity supplied at different prices.
How do suppliers react to price changes?
Enter or exit market based on profitability.
What influences the profitability of suppliers?
Different extraction costs.
What does the slope of a supply curve indicate?
Exploitation of higher-cost sources as prices increase.
How does the supply curve impact oil well depth?
Determines the depth of oil wells.
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Summary
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Oil Supply Curve and Price Dynamics
- A supply curve illustrates how much of a good suppliers are willing to supply at various prices, with a direct relationship between price and quantity supplied. For instance, as the price of oil increases, the quantity supplied also rises, with different extraction costs influencing the profitability of suppliers at varying price points.
- Suppliers respond to price changes by entering or exiting the market based on profitability, with the supply curve reflecting this dynamic relationship and the impact of price fluctuations on the quantity of oil supplied. The slope of the curve signifies the necessity to exploit higher-cost sources of oil as prices increase, ultimately determining the depth of oil wells.
