Using a Table
There are other ways to express the supply for a product that may be easier for a reader to follow. One way that supply is expressed in economics is using a table. As with words, there are many ways we could present this. For example, we could have a table that shows how much wine one would supply at each level of input costs. However, since price is widely believed to be the main factor influencing supply, we typically use a table that shows the quantity producers are willing and able to sell at each price. For example:
As this table shows, if the price of a bottle of wine were $10, we would expect 25,000 cases of red wine to be sold; if the price of a bottle of wine were $20, we would expect 45,000 cases to be sold. This is the same information we gave to you above - we've just presented it in a different way. The table also has an extra line that shows you that if the price of a bottle of US-produced red wine were $30, we would expect just 65,000 cases to be sold.
But what if something else changes? For example, red wine is produced by putting a bunch of grapes in a large vat and using the force of gravity crush the grapes on the bottom of the vat by the weight of the grapes at the top and allowing the grapes to ferment in the skins and stems. If a winery equipment company invents a new vat that can hold more grapes, wine producers can buy this advanced technology and make more wine at one time. This is an example of an increase in production technology. What effect might we expect this to have on the supply for red wine? Suppose the table shown above represents the supply for red wine that existed before these machines were released . After this new production machinery is made available, producers may very well want to sell more red wine because they have larger production runs (are making more). (This would be a change in production technology.) What this means is that any given price, people want to sell more red wine than before. For example, when the price of a bottle of red wine is $10, producers are now willing and able to sell 55,000 cases of red wine in a month (instead of the 25,000 cases they were willing and able to sell before). At a price of $20 a bottle, producers are willing and able to sell 75,000 cases of red wine in a month, and 95,000 cases at a price of $30. This is reflected in the table below:
At this point we need to introduce a little terminology that is used in many economics courses. Suppose someone wanted to compare the amount of wine producers are willing and able to purchase at a price of $10 before the machines were released (25,000 cases in the table) with that when the price is $20 after the machines were released (75,000 cases). One might be confused because as the price increased from $10 to $20, the amount producers were willing and able to sell increased from 25,000 cases to 75,000 cases. Does this mean that the Law of Supply does not hold? Of course not. The problem with this comparison is that TWO things are changing: the price of a bottle of wine (from $10 to $20) and the technology of producers (because the new machine was released ). In order to avoid confusion, we try to be careful to consider the effect of only one factor at a time. For example, the effect of increasing the price of a bottle of wine from $10 to $20, holding "everything else constant" (such as technology, input prices, etc.) is to increase the amount producers are willing and able to sell by 30,000 cases (from 25,000 to 45,000 before the machines were released , or from 55,000 to 75,000 after they were released). On the other hand, the effect of the machines, holding "everything else constant" (such as the price of wine, etc.) is to increase the amount producers are willing and able to sell by 45,000 cases (from 25,000 to 55,000 if the price is $10; or from 45,000 to 75,000 if the price is $20). The latin phrase for holding everything else constant is ceteris paribus.