Factors influencing demand & supply in product markets

why supply curve is sloping upward:

• marginal cost increasing

  • producing more of a good is harder because resources are limited

  • to keep producing, firms face higher marginal costs

  • to cover these rising costs, they need higher prices to make profits

Simple Example:

Imagine selling lemonade:

• First 10 cups: You use the lemons and sugar you already have. Each cup costs you $1 to make, and you sell for $2—great profit!

• Next 10 cups: You run out of lemons and need to buy more. These lemons are more expensive, so now each cup costs $1.50 to make. You need to charge at least $1.50 to avoid losing money.

• More cups: If making each extra cup costs $2, you need to charge $2 or more.