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Across the table from every buyer is a seller, who provides the supply to meet the buyer’s demand. In microeconomics, the smallest unit of supply is the firm, which is analogous to the demand unit of the household. In an ideal market (we will explore different market structures later on), firms operate independently of each other, each making decisions about how much to sell, depending on the price. If a firm in Boston decides to sell warm hats, it will want to sell more hats if the going price is high than if the going price is low. Just like households, firms try to maximize their utility when making selling decisions.
Economists usually assume that sellers derive their utility from profit. That is, the more money a seller makes from a sale, the happier they will be. Firms will maximize their utility by selling whatever will make them the most money. Later, we will go into detail about how firms maximize their profits. Here, we will look at graphical and mathematical ways to represent supply, and we will see what factors can affect supply.
