During a trip to Africa years ago, I received the following bit of advice from a missionary I met there: “When you go to the market, don't haggle with the vendors; just pay them what they ask, because they really need the money.” Although he was well intentioned, I found his suggestion to be problematic. As I had learned in my youth at the local sale barn, both buyers and sellers want to know they got the best deal they could. Sellers want to know that the items they have sold could not have been sold for 1 penny more, and buyers want to know that the items they have bought could not have been purchased for 1 penny less. For a buyer to pay the initial asking price leaves the seller thinking he or she could have asked for more. For a seller to accept the first offer leaves the buyer thinking he or she could have offered less. In economics, a market is considered efficient when the willingness to sell just equals the willingness to buy.
For any given product or service, the amount that producers and firms are willing to sell at any given price (with all other factors being held constant) is defined as market supply, and it is this relationship between price and quantity that defines the supply function (or supply curve). The supply function is similar to the demand function, but the relationship between price and quantity demanded is usually negative (ie, as price increases, the quantity demanded decreases), whereas the relationship between price and quantity supplied is usually positive (ie, as price increases, the quantity supplied increases). The percentage change in quantity supplied divided by the percentage change in price defines the price elasticity of supply.