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How do markets determine which producers are more desperate to sell a commodity? Carefully explain your answer with the use of a supply-demand diagram

Economics Dec 09, 2020

How do markets determine which producers are more desperate to sell a commodity? Carefully explain your answer with the use of a supply-demand diagram.

Expert Solution

Supply curve is a graphical representation of law of supply. The law of supply states that at higher price of a normal good, more quantities of the good will be supplied, other factors affecting the supply of the good remaining constant.

Notice that when price is P1, quantity supplied is Q1 and when price rises to P2, more quantity is supplied that is Q2. This implies that at price of P1 there were fewer suppliers who were ready to supply the good than the number of suppliers who are supplying at price P2. The higher the price goes, more and more suppliers will be added, supplying the good. From this phenomena it is clear that those who supply at lower price have more willingness and ability to sell than others and thus are more desperate that even at lower price they are supplying. From this it is inferred that market can find the suppliers, who are more desperate to sell a commodity at lower level of supply curve. In other words, they are found as those who are ready to sell a commodity even at low price.

Look at the given demand and supply graph as follows:

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