1. R . D A V I D J O H N S O N M B A
F A L L 2 0 1 6
ECON 2201: SUPPLY
2. L I K E D E M A N D W E H A V E 3 P O I N T S W I T H S U P P L Y :
-W I L L I N G N E S S A N D A B I L I T Y
-R A N G E O F Q U A N T I T I E S A N D P R I C E S
-A G I V E N T I M E P E R I O D
Supply
Supply is the willingness and ability to sell a range of quantities of a
good at a range of prices, during a given time.
3. More We Need To Consider About Supply
Supply price is the minimum price that sellers would be willing and
able to accept for a given quantity of a good.
Sellers have a lower limit on the price that they would be willing and
able to accept for a good, compared to the upper limit of the demand
price.
Sellers are willing and able to accept a higher price.
4. More We Need To Consider About Supply
Quantity supplied: is a specific quantity at a specific price (a quantity
paired with a price).
Not the same as supply.
Supply is the entire range of prices (all pairs of numbers)
Supply as the range of prices and quantities that sellers are willing
and able to sell at different prices.
5. Law of Supply
The law of supply is the basic principle underlying
supply.
6. Definition of Law of Supply
The law of
supply is a
direct
relationship
between
supply price
and the
quantity
supplied,
ceteris
paribus.
7. Definition of Law of Supply
Direct relationship
means that people sell
more of a good if the
price is higher and less if
the price is lower.
The law of supply is not
as rigid as the law of
demand. The price and
the quantity supplied are
not always directly
related. Higher prices
could cause an increase
or a decrease in the
quantity supplied.
8. Ceteris paribus is
important to the
law of supply.
Ceteris paribus means
other things remain
unchanged.
Law of supply applies
exclusively to the
relationship between
supply price and quantity
supplied.
All other things that can
affect supply must remain
constant to avoid distorting
this relationship.
Because supply is affected
by many factors other than
price, the price/quantity
supply relationship can get
lost when other things
change.
Other factors that affect supply
are called supply determinants.
9. Why does the law of supply work?
The answer rests with production cost. In particular,
the law of supply exists because of the law of
increasing opportunity cost.
As we saw with production possibilities analysis, by
increasing the production of a good, the opportunity
cost of production increases.
Production cost increases as we increase production.
To supply a larger quantity, producers need to cover
these higher production costs with a higher price.
10. Why does the law of supply work?
The law of supply, which is an economic principle
stating that supply price and quantity supplied are
directly related, ceteris paribus.
The fact that the law of supply is not as rigid as the
law of demand.
11. Supply Schedule
This table is a supply schedule presenting the
relationship between supply price and quantity
supplied.
12. Observations from Supply Schedule
First, higher prices go with larger quantities
supplied-the law of supply.
Second, the prices are minimum values for the given
quantities.
Third, supply is the whole set of price/quantity pair
numbers. Quantity supplied is any single number at
the specified price.
Fourth, these numbers are hypothetical, presenting a
'what if' relationship.
13. Supply Curve
A supply schedule can be used to plot a supply curve.
14. Observations from Supply Curve
The connected plotted points are called a supply
curve.
A supply curve has a positive slope.
Higher prices correspond with larger quantities.
The supply curve embodies the law of supply.
16. Observations from Supply Space
The curve represents the minimum price that sellers
would be willing to accept.
Sellers would be willing to accept more than the
supply price on the supply curve, but not less.
The supply schedule as a table of price/quantity
numbers that illustrate the supply relation and the
law of supply.
17. Ceteris Paribus Factors With Supply
Ceteris Paribus is the notion that other things
remain constant.
Assumption is made because things other than price
affect supply.
These other, ceteris paribus factors, give us useful
analytical tools for examining supply and the market.
We can turn these factors off and on to better
understand how the market works.
The ceteris paribus factors are called determinants
of supply.
19. Supply Shifters Increase: Supply Determinants Shift The
Supply Curve
Supply determinants shift the demand curve.
20. Supply Shifters Increase: Supply Determinants Shift the
Supply Curve
A change in one of the determinants can cause:
An increase in supply, a rightward shift, which
means that for any price, for every price, sellers are
willing and able to sell more of the good.
21. Supply Shifters Increase: Supply Determinants Shift The
Supply Curve.
Supply determinants shift the Supply curve.
22. Shifters Decrease: Supply Determinants Shift The Supply
Curve
A change in one of the determinants can cause:
A decrease in supply, a leftward shift, which means
that for any price, for every price, sellers are willing
and able to sell less of the good.
23. 5 Determinants That Cause the Supply Curve To Shift
Resource prices: If the price of any resource (labor,
capital, land, or entrepreneurship) changes, so too does
production cost and the ability to supply a good.
Technology: Improving production techniques
enhance the ability to supply a good.
Prices of other goods: Goods using the same inputs
can be either substitutes or complements in production.
Expectations: Sellers' current supply depends on
expectations of future prices.
Number of sellers: More sellers, more supply. Fewer
sellers, less supply.
24. 5 Determinants That Cause the Supply Curve To Shift
These categories include all factors other
than price that affect supply.
Supply, the whole range of prices and quantities
Quantity supplied, a specific quantity supplied at a
specific price.
25. The Difference Between Change in Supply and Quantity
Supplied
These categories include all factors other
than price that affect supply.
Change in supply, we are changing, moving, shifting,
the entire supply curve, the whole set of prices and
quantities is changing. The five determinants change
the supply.
Change in quantity supplied, we have moved to a
new quantity on an same supply curve. Only the
price of the good changes the quantity supplied.
This difference lets us analyze cause and effect.
Don't confuse these two!
26. Limited
Resources
•Supply is directly connected
to the scarcity problem,
especially limited resources.
•
•Scarcity exists because society has
limited resources, but unlimited
wants and needs.
•Markets were developed as a
means of addressing the problem
of scarcity:
• The supply side of the
market comes from the
'limited resources' side of
the scarcity problem.
• The demand side of the
market comes from the
'unlimited wants and
needs' side of the scarcity
problem.
