Short-Run Market Supply Curve

Definition

The short-run market supply curve represents the relationship between the price of a good and the total quantity supplied by all firms in a perfectly competitive market in the short run. It shows how the total quantity supplied in the market responds to changes in the market price, assuming that some factors of production are fixed in the short run.

5 Must Know Facts For Your Next Test

1. The short-run market supply curve is upward-sloping, reflecting the law of supply: as the price rises, the quantity supplied increases.
2. The position and slope of the short-run market supply curve depend on the cost structures and production decisions of individual firms in the market.
3. In the short run, firms can only increase output by increasing the utilization of variable inputs, such as labor and raw materials, while keeping fixed inputs, like capital equipment, constant.
4. The short-run market supply curve shifts in response to changes in input prices, technology, or the number of firms in the market.
5. The short-run market supply curve is more elastic (flatter) when there is more excess capacity in the industry, and more inelastic (steeper) when firms are operating closer to full capacity.

Review Questions

• Explain how the short-run market supply curve is related to the law of supply.
  • The short-run market supply curve is upward-sloping, reflecting the law of supply. This means that as the market price rises, the quantity supplied by firms in the market also increases. This is because in the short run, firms can only increase output by using more variable inputs, which become more costly as production is ramped up, leading to a higher supply price.
• Describe how changes in input prices or technology can affect the short-run market supply curve.
  • Changes in input prices or technological advancements can shift the short-run market supply curve. If input prices rise, the cost of production increases, causing firms to supply less at any given price, resulting in a leftward shift of the supply curve. Conversely, if input prices fall or technology improves, reducing production costs, the supply curve will shift to the right, as firms are willing to supply more at each price point.
• Analyze how the elasticity of the short-run market supply curve is affected by the level of excess capacity in the industry.
  • The elasticity of the short-run market supply curve is influenced by the level of excess capacity in the industry. When there is more excess capacity, the supply curve will be more elastic (flatter), as firms can more easily increase production by utilizing their underutilized resources. Conversely, when firms are operating closer to full capacity, the supply curve will be more inelastic (steeper), as it becomes more difficult and costly for firms to expand output in the short run.

Related terms

Perfect Competition:

A market structure characterized by many small firms selling identical products, with no individual firm able to influence the market price.

Short Run:

A period of time in which at least one factor of production is fixed, limiting a firm's ability to adjust its output.

Market Supply: The total quantity of a good or service that all firms in a market are willing and able to sell at various prices during a given time period.