Praxis

August 1, 2007

The Supply Curve

Filed under: Economics — duncan @ 8:52 pm

 

Okay: this is probably a very stupid question. But I’m going to ask it anyway. Here you’ve got an example of your basic supply curve. It shows how much of a commodity producers will supply at any given price. Yes?

The shape of the curve is determined by “the conditions of supply”. Using the example of eggs (we all love eggs) my textbook gives examples of such conditions: “Price expectations”; “A change in the prices of factors of production”; “government policy”; etc. etc.

Last, but not least: “(8) The entry of new firms into the industry. If new farms begin to produce eggs, then supply would be increased and the supply curve would move to the right.” (Harvey & Jowsey, p. 41).

Now, forgive me if I’m being slow here – but this point isn’t limited to “the entry of new firms into the industry”, is it? What Harvey and Jowsey mean is: if supply increases, the supply curve changes.

But… uh… supply is one of the axes against which the supply curve is plotted.

In his little intro to economics, Tony Cleaver likes talking about endogenous and exogenous changes. “The distinction between endogenous (internal) and exogenous (external) changes is important and will be referred to continually through this text.” (p. 36).

Can someone explain to me, then, how a change in supply is not both endogenous and exogenous here? If it’s both: how does this not completely fuck up the supply curve?

I realise that there’s a difference between hypothetical and actual supply here; and I realise there’s a difference between the supply curve of an individual firm and of the industry as a whole. But I don’t see how either of these differences resolve my bafflement.

Am I missing something? (Very probable.) Or are the textbooks just assuming I, like, won’t notice this?

4 Comments

  1. I think most of neoclassical economics is nonsense. Thus, I’m not surprised at balderdash being in the textbooks.

    Nevertheless, I wonder if this can be explained by the distinction between a short-run and a long-run supply curve. In the short run, the capacity is fixed. Does your textbook explain the shift as a shift in the short-run supply curve when new firms enter? This would only make sense in a partial equilibrium context, if Marshallian partial equilibrium made any sense.

    Comment by Robert — August 2, 2007 @ 11:27 pm

  2. Robert,

    big thanks for the comment. You are very probably right. Since I think with the speed of a sloth (and I’m in an internet cafe without the textbook), I don’t really have a response. But this will go into the brainchurn, and perhaps make me go less mad when looking at supply curves. Thank you.

    (Also: Isn’t this interweb terrific, folks? Here’s a helpful comment from someone who knows what he’s talking about! He’s a fan of Piero Sraffa! It’s all good stuff.)

    Comment by praxisblog — August 3, 2007 @ 8:33 pm

  3. It’s an old post but maybe someone will google this so here is my 2 cents:

    This is just a difference between ‘quantity’ supplied and supply schedule. As you’ve guessed that is the point you’re missing.
    In the example of additional firms entering, supply schedule changes, so quantity supplied increases at given price(or given quantity supplied, price goes down.) But let’s say that supply schedule(supply curve) doesn’t change, and demand curve shifts. Then, ‘supply’ as you say it(which is quantity supplied, and is a point on supply curve) will change, without affecting supply curve.

    I’m sorry to say it but this doesn’t have anything to do with short-run vs long-run supply curve. Hope this clears misunderstanding.

    Comment by kornfrost — February 21, 2011 @ 3:44 am

  4. Thanks, kornfrost, I was about to post exactly the same thing.

    Comment by Alex @ Curve 8530 — March 15, 2011 @ 7:34 am


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