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Law of Supply, Determinants of Supply, Change in Supply and Change in Quantity Supply

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### Lecture3

1. 1. Lecture #3 Law of Supply, Determinants of Supply, Change in Supply and Change in Quantity Supply
2. 2. • Supply • Law of Supply Supply Schedule Supply curve • Determinants of Supply • Change in Supply • Change in Quantity Supply • Change in Supply vs. Change in Quantity Supply remember you and I are here “to learn from each other” Contents….
3. 3. Supply • Supply is schedule or a curve that shows the amounts of product that producers are willing and able to make available for sale at each of series of possible prices during specified period of time.
4. 4. Law of Supply • It states that other things constant, when price of a commodity rises, the quantity supply for that commodity rises and when price of a commodity falls, the quantity supply for that commodity falls. “Supply for a product is positively related to its price”. 4SUPPLY AND DEMAND
5. 5. Supply Schedule Supply Curve Supply schedule is a table showing the relationship between price and quantity supply of commodity. Supply curve is the graphical representation of the supply schedule; it shows how much of a good or service producer want to sell at any given price. Positive relationship between price and demand Price # Qs # Price \$ Qs \$ PriceofCoke Quantity Supply of Coke Price of Coke Quantity Supply of coke 5 2 10 4 15 6 10 5 15 2 4 6
6. 6. Determinants of Supply • Resource prices • Technology • Taxes and Subsidies • Number of sellers • Price expectations Any change in these determinants causes shift in supply curve.
7. 7. Shifts in the Supply Curve Supply will shift right if – Raw materials or labor becomes cheaper – The technology becomes more efficient – Number of sellers increases – Lower expected prices – Decrease in taxes – Increase in subsidies Supply will shift left in opposite situation.
8. 8. Shifts in the Supply Curve Price Quantity Supply0 Increase in supply Decrease in supply Supply curve, S 3 curve, Supply S 1 Supply curve, S 2
9. 9. Change in Quantity Supply Change in quantity Supply is movement from one point to another from one price combination to another on a fixed supply curve. An increase in quantity supply is represented by expansion in supply curve while a decrease in quantity supply is represented by contraction in supply curve. Expansion Contraction
10. 10. Change in Supply Vs. Change in Quantity Supplied Change in price of a good or service leads to Change in quantity supplied (Movement along the curve). Change in other factors leads to Change in supply (Shift of curve). A change in supply is not the same as a change in quantity supplied.
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