Demand & Supply
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  • 1. (Supply) T- 1-855-694-8886 Email- info@iTutor.com By iTutor.com
  • 2. Supply • Behaviour of sellers • Relationship between – Quantity supplied of a good – Price – Holding other factors constant • The relationship that exists between the price of a good and the quantity supplied in a given time period, ceteris paribus. 0 20 40 60 4 3 2 1 Price Quantity © iTutor. 2000-2013. All Rights Reserved
  • 3. Supply in Output Markets • A supply schedule is a table showing how much of a product firms will supply at different prices. • Quantity supplied represents the number of units of a product that a firm would be willing and able to offer for sale at a particular price during a given time period. PRICE (PER BUSHEL) QUANTITY SUPPLIED (THOUSANDS OF BUSHELS PER YEAR) $ 2 0 1.75 10 2.25 20 3.00 30 4.00 45 5.00 45 JORDAN 'S SUPPLY SCHEDULE FOR SOYBEANS © iTutor. 2000-2013. All Rights Reserved
  • 4. The Supply Curve and the Supply Schedule • A supply curve is a graph illustrating how much of a product a firm will supply at different prices. 0 1 2 3 4 5 6 0 10 20 30 40 50 Priceofsoybeansperbushel($) Thousands of bushels of soybeans produced per year PRICE (PER BUSHEL) QUANTITY SUPPLIED (THOUSANDS OF BUSHELS PER YEAR) $ 2 0 1.75 10 2.25 20 3.00 30 4.00 45 5.00 45 JORDAN 'S SUPPLY SCHEDULE FOR SOYBEANS © iTutor. 2000-2013. All Rights Reserved
  • 5. The Law of Supply • There is a direct relationship between price and quantity supplied. – Quantity supplied rises as price rises, other things constant. – Quantity supplied falls as price falls, other things constant. 0 1 2 3 4 5 6 0 10 20 30 40 50 Thousands of bushels of soybeans produced per year Priceofsoybeansperbushel($) If the price of a good then the Qs © iTutor. 2000-2013. All Rights Reserved
  • 6. • Changes in price causes changes in quantity supplied represented by a movement along a supply curve. • A movement along a supply curve – the graphic representation of the effect of a change in price on the quantity supplied. • If the amount supplied is affected by anything other than a change in price, there will be a shift in supply. • Shift in supply – the graphic representation of the effect of a change in a factor other than price on supply. Shifts in Supply Versus Movements Along a Supply Curve © iTutor. 2000-2013. All Rights Reserved
  • 7. Change in quantity supplied (a movement along the curve) Change in Quantity Supplied Price(perunit) Quantity supplied (per unit of time) S0 $15 A 1,250 1,500 B © iTutor. 2000-2013. All Rights Reserved
  • 8. Shift in Supply Price(perunit) Quantity supplied (per unit of time) S0 Shift in Supply (a shift of the curve) S1 $15 A B 1,250 1,500 © iTutor. 2000-2013. All Rights Reserved
  • 9. Changes in Supply • If other factors do change, – Change in supply – Shift to a new supply curve • Increase in supply – increase in Qs at every price – supply curve shifts to the right • Decrease in supply – decrease in Qs at every price – supply curve shifts to the left 0 20 40 60 4 3 2 1 Price Quantity Increasing in supply 2 1 0 1 2 3 Decrease in supply © iTutor. 2000-2013. All Rights Reserved
  • 10. Factors affecting supply • Other factors besides price affect how much will be supplied: – Prices of inputs used in the production of a good. – Technology. – Suppliers’ expectations. – Taxes and subsidies. – Prices of related goods Supply Resource Prices Technology And Productivity Expectations Of Producers Number Of Producers Prices of Related Goods and Services © iTutor. 2000-2013. All Rights Reserved
  • 11. • Resource price – When costs go up, profits go down, so that the incentive to supply also goes down. – If the price of crude oil (a resource or input into gasoline production) increases, the quantity supplied of gasoline at each price would decline, shifting the supply curve to the left. • Technology – Advances in technology reduce the number of inputs needed to produce a given supply of goods. – Costs go down, profits go up, leading to increased supply. – If a new method or technique of production is developed, the cost of producing each good declines and producers are willing to supply more at each price - shifting the supply curve to the right. • Price Expectations – Expectations about the future price will shift the supply. – If suppliers expect prices to rise in the future, they may store today's supply to reap higher profits later. © iTutor. 2000-2013. All Rights Reserved
  • 12. • Number of sellers – As more people decide to supply a good the market supply increases. – If more companies start to make motorcycles, the supply of motorcycles would increase. If a motorcycle company goes out of business, the supply of motorcycles would decline, shifting the supply curve to the left. • Prices of other goods – If the price of wheat increases relative to the price of other crops that could be grown on the same land, such as potatoes or corn, then producers will want to grow more wheat, ceteris paribus. By increasing the resources devoted to growing wheat, the supply of other crops will decline. Goods that are produced using similar resources are substitutes in production. – Complements in production are goods that are jointly produced. Beef cows provide not only steaks and hamburger but also leather that is used to make belts and shoes. An increase in the price of steaks will cause an increase in the quantity supplied of steaks and will also cause an increase (or shift right) in the supply of leather which is a complement in production. © iTutor. 2000-2013. All Rights Reserved
  • 13. Individual supply & Market supply • Individual supply • The supply of a good or service can be defined for an individual firm, or for a group of firms that make up a market or an industry. • Supply curve for One supply • Market supply • Market supply is the sum of all the quantities of a good or service supplied per period by all the firms selling in the market for that good or service. • Supply curve for all sellers • Add up individual Qs for each price • The market supply curve is derived by horizontally adding the individual supply curves of each supplier. © iTutor. 2000-2013. All Rights Reserved
  • 14. Market Supply • As with market demand, market supply is the horizontal summation of individual firms’ supply curves. © iTutor. 2000-2013. All Rights Reserved
  • 15. The End Call us for more Information: www.iTutor.com 1-855-694-8886 Visit