Function for procurement of goods or services
In the realm of economics, the inverse supply function plays a crucial role in determining the market equilibrium price and quantity. This function, which connects the price of a good with the quantity supplied, offers valuable insights into the dynamics of supply and demand.
The inverse supply function, denoted as ( S^{-1}(q) ), reveals the price ( \pi_s ) corresponding to a quantity ( q ) supplied. This function is often piecewise or continuous, reflecting the varying prices sellers require at different quantities.
The market equilibrium price is achieved at the intersection of the inverse supply and inverse demand functions, balancing the quantity supplied and demanded. A higher price according to the inverse supply function typically results in a greater quantity supplied, mirroring the upward slope of the supply curve (price increases incentivize more supply).
Changes in supply determinants other than price can shift the supply curve, altering the inverse supply function. For instance, a decrease in supply shifts the inverse supply curve upward/leftward, leading to higher equilibrium prices and lower quantities supplied.
It's important to note that the inverse supply function, when ignoring wages, takes the form of QS = a + bP. The coefficient 'b' indicates the sensitivity of supply to price changes, while a higher positive coefficient sign signifies a positive relationship between the price and the quantity supplied.
The value 1/b represents the slope of the supply curve, and a/b represents the intercept of the curve. To get the slope of the supply curve, economists determine the inverse supply function.
Economists use several variables to explain how they affect supply, assuming other factors do not change. In a simple supply curve, they illustrate the relationship between the price of goods and the quantity supplied.
The graphical representation of the inverse supply function is a graph with the x-axis representing the quantity supplied and the y-axis representing the price of the goods. The supply function is a mathematical equation that connects the quantity of a good with its determining factors, including its own price, wages, energy costs, raw material prices, taxes, selling price expectation, subsidies, and more.
Interestingly, a price increase increases the amount supplied by 'b' units, as per the law of supply, while if wages rise, the supply quantity decreases by 'c' units. This signifies an inverse relationship between supply quantity and wages in the equation.
In conclusion, the inverse supply function directly links price to quantity supplied, and its form and shifts affect the market equilibrium by changing both the equilibrium price and quantity supplied. The function is a key part of models that determine how prices clear the market by equating supply and demand.
[1] Inverse Supply Function (2021). Retrieved from https://www.investopedia.com/terms/i/inverse_supply_function.asp [2] Supply Curve (2021). Retrieved from https://www.investopedia.com/terms/s/supply_curve.asp [3] Law of Supply (2021). Retrieved from https://www.investopedia.com/terms/l/law_of_supply.asp [4] Market Equilibrium (2021). Retrieved from https://www.investopedia.com/terms/m/market_equilibrium.asp [5] Inverse Demand Function (2021). Retrieved from https://www.investopedia.com/terms/i/inverse_demand_function.asp
Read also:
- Intensified farm machinery emissions posing challenges to China's net-zero targets
- EU Fuel Ban Alerts Mercedes Boss of Potential Crisis
- Nuclear plant revitalized: Artificial intelligence-led demand breathes life into the Great Lakes nuclear facility
- International finance institutions, EBRD, EIB, and SEB, offer €84.8 million in loans for solar energy projects within Latvia.
