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  • - Now that we've got the demand curve down, let's move on to the supply curve.

  • A supply curve shows how much of a good suppliers are willing and able to supply

  • at different prices. As with the demand curve, there's a supply curve for every

  • good and service. And again the ideas are the same so let's look at the supply curve

  • for oil. We see an intuitive relationship between price and the quantity supplied.

  • As the price goes up, the quantity of oil that companies are willing to supply

  • increases. In this example, in a low price, $5 per barrel, let's say 10 million

  • barrels of oil are supplied per day. At $20 per barrel, 25 million barrels are

  • supplied, and at $55 per barrel, 50 million barrels are supplied. So in

  • general, a higher price means a greater quantity supplied. Let's go deeper and see

  • why. Oil exists all over the world but it's not equally easy to extract. In some

  • places like Saudi Arabia, it's really easy to get oil out of the ground. It's costs

  • about $2 a barrel to extract. Oil in the U. S.like from Alaska is a lot deeper and

  • getting out cost more, at least $10 per barrel. And producing oil from an oil rig

  • like the Atlantis rig in the Gulf Coast is even more expensive. That rig has to

  • descend more than a mile underwater before drilling even begins. When oil prices are

  • relatively low the only suppliers that can turn a profit are those who can get to the

  • oil cheaply, like Saudi Arabia. As the price goes up, other suppliers in Nigeria,

  • Russia, and Alaska who have higher extraction costs starts to become

  • profitable so they can enter the market. As the price gets higher, even the most

  • expensive extraction techniques become profitable. The supply curve slopes upward

  • because the only way the quantity of oil can be increased is to exploit higher and

  • higher cost sources of oil. As the price of oil goes up, the depth of

  • the oil wells goes down. With this simple line the supply curve summarizes the way

  • suppliers respond to a change in price including how suppliers will enter and

  • exit the market depending on the price. So far we've said things like if the price

  • goes down, buyers will want to buy more or if the price rises suppliers will want to

  • sell more. But we haven't said anything about how prices are determined. That's

  • the subject for the next video, Equilibrium.

  • If you want to test yourself, click Practice Questions or

  • if you're ready to move on, just click Next Video.

  • Subtitles by the Amara.org community

- Now that we've got the demand curve down, let's move on to the supply curve.

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B1 US oil curve price supply barrel quantity

The Supply Curve

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    Hsi-Ying Liu posted on 2015/10/22
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