3. Supply slide 3
The DEPENDENT variable is the amount supplied.
The INDEPENDENT variables are:
the good’s own price
the prices of inputs used in its production
the technology of production
taxes and subsidies
THE “STANDARD” MODEL OF
SUPPLY
AN IMPORTANT POINT
When drawing a supply curve notice that the axes are
reversed from the usual convention of putting the
dependent (y) variable on the vertical axis, and the
independent (x) variable on the horizontal axis.
4. slide
4
Supply
THE SUPPLY CURVE
The supply curve for any good shows the
quantity supplied at each price, holding
constant all other determinants of supply.
The DEPENDENT variable is the quantity supplied.
The INDEPENDENT variable is the good’s own
price.
5. Supply slide 5
THE LAW OF SUPPLY
The Law of Supply says that an increase in a
good’s own price will result in an increase in
the amount supplied, holding constant all the
other determinants of supply.
The Law of Supply says that supply curves are
positively sloped.
6.
Supply slide 6
A SUPPLY CURVE
A supply curve must look like this, i.e., be positively
sloped.
own
price
quantity supplied
supply
TACO MARKET
7. Supply slide 7
ECONOMISTS HAVE
HYPOTHESES ABOUT HOW
CHANGES IN EACH OF THE
INDEPENDENT VARIABLES
AFFECTS THE AMOUNT
SUPPLIED
8. Change in technology
Other factors affecting supply
The question here is how to show the effects of changes in input
prices, technology, and taxes.
The answer, of course, is that changes in input prices, technology, or
taxes cause the supply curve to shift.
An improvement in technology makes it possible to produce a
level of output with fewer inputs than before.
Because this lowers the cost of production, profits rise, and firms
will try to supply more.
9. Factors that Shift Supply
Supply
slid
e 9
Prices of Related
Goods and Services
Number
Of
Producers
Expectations
Of
Producers
Technology
And
Productivity
Resource
Prices
Supply
10.
Supply slide 10
Shift in Supply
Price(perunit)
Quantity supplied (per unit of time)
Shift in Supply
(a shift of the curve)
B
10
A
1,250 1,500
S1
S0
11.
Supply slide 12
own price
quantity
supply @ old
technology
BEER MARKET
Suppose beer technology improves.
How does this affect
the supply curve for beer?
12. THERE IS AN DECREASE IN SUPPLY. THE SUPPLY
CURVE SHIFTS TO THE LEFT WORD
SUPPLY slide 14
own price
quantity
supply @ old
technology
BEER MARKET
supply @ decrease technology
13. Supply summary
Supply
slide
15
Supply is a function of own price, input prices,
and technology.
The supply curve shows supply as a function of
own price, all else constant.
Changes in a good’s own price show up as
movements along a supply curve.
Changes in input prices, technology, or taxes
show up as shifts in the supply curve.