Placeholder Image

Subtitles section Play video

  • - 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. 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 community

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

Subtitles and vocabulary

Operation of videos Adjust the video here to display the subtitles

B1 US oil curve price supply barrel quantity

The Supply Curve

  • 242 15
    Hsi-Ying Liu posted on 2015/10/22
Video vocabulary