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♪ [music] ♪

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- [Narrator] Now that we've got
the demand curve down,

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let's move on to the supply curve.

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A supply curve shows how much
of a good suppliers

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are willing and able to supply
at different prices.

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As with the demand curve,
there's a supply curve

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for every good and service.

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And again the ideas
are the same, so let's look

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at the supply curve for oil.

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We see an intuitive relationship
between price

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and the quantity supplied.

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As the price goes up,
the quantity of oil

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that companies are willing
to supply increases.

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In this example, in a low price,
$5 per barrel,

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let's say 10 million barrels
of oil are supplied per day.

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At $20 per barrel,
25 million barrels are supplied,

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

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So in general, a higher price
means a greater quantity supplied.

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Let's delve deeper and see why.

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Oil exists all over the world,

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but it's not equally easy
to extract.

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In some places like Saudi Arabia,
it's really easy to get oil

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out of the ground.

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It's costs about $2 a barrel
to extract.

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Oil in the US, like from Alaska,
is a lot deeper

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and getting it out cost more,
at least $10 per barrel.

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And producing oil from an oil rig,
like the Atlantis rig

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in the Gulf Coast,
is even more expensive.

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That rig has to descend
more than a mile underwater

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before drilling even begins.

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When oil prices are relatively low,
the only suppliers

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that can turn a profit
are those who can get

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to the oil cheaply,
like Saudi Arabia.

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As the price goes up,
other suppliers in Nigeria,

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Russia, and Alaska, who have higher
extraction costs,

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start to become profitable
so they can enter the market.

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As the price gets higher,

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even the most expensive
extraction techniques

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become profitable.

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The supply curve slopes upward
because the only way the quantity

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of oil can be increased
is to exploit higher and higher

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cost sources of oil.

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As the price of oil goes up,

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the depth of the oil wells
goes down.

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With this simple line
the supply curve summarizes

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the way suppliers respond
to a change in price

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including how suppliers
will enter and exit the market

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depending on the price.

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So far, we've said things
like if the price goes down,

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buyers will want to buy more
or if the price rises,

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suppliers will want to sell more.

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But we haven't said anything
about how prices are determined.

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That's the subject
for the next video,

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Equilibrium.

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If you want to test yourself,
click "Practice Questions."

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

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♪ [music] ♪