Supply and demand

In microeconomic theory, the partial equilibrium supply and demand economic model originally developed by Alfred Marshall attempts to describe, explain, and predict changes in the price and quantity of goods sold in competitive markets. The model is only a first approximation for describing an imperfectly competitive market. It formalizes the theories used by some economists before Marshall and is one of the most fundamental models of some modern economic schools, widely used as a basic building block in a wide range of more detailed economic models and theories. The theory of supply and demand is important for some economic schools' understanding of a market economy in that it is an explanation of the mechanism by which many resource allocation decisions are made. However, unlike general equilibrium models, supply schedules in this partial equilibrium model are fixed by unexplained forces.

Special Cases of a Supply Curve

As described above, the general form of a supply curve is that it is upward sloping.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

There are a few rare cases in which the supply curve may be backward bending.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

A well known example is for the supply curve for labor: backward bending supply curve of labour.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

As a person's wage increases, they are willing to supply a greater number of hours working, but when the wage reaches an extremely high amount (say a wage of $1,000,000 per hour), the amount of labor supplied actually decreases.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~