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# Supply

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• ### Supply

1. 1. SupplySupply
2. 2. OutlineOutlineI. Law of SupplyII. Supply Schedules and Supply CurvesA. Supply SchedulesB. Supply CurvesC. Market Supply
3. 3. Outline (Cont.)Outline (Cont.)III. Change in Supply vs. Change in QuantitySuppliedA. Change in SupplyB. Change in Quantity Supplied
4. 4. What is Supply?What is Supply?• Supply is how much a firm is willing to sellat every given price, ceteris paribus• Thus, if all else remains the same and theprice of a good goes up, what would youexpect the response of a firm to be?– To produce more, since prices are going up, sowill profits
5. 5. Law of SupplyLaw of Supply• Law of Supply - the price of a product (orservice) is directly related to the quantitysupplied, ceteris paribus.• Quantity Supplied - the amount of a good(or service) produced by firms at aparticular price.• While demand typically refers toconsumers, supply typically refers to firms.
6. 6. Supply Schedules and CurvesSupply Schedules and Curves• Just like we were able to construct aDemand Schedule and Demand Curve, wewill do the same for Supply• Supply Schedule - a table showing therelationship between the price of a good andthe quantity supplied per period of time,ceteris paribus.
7. 7. Supply ScheduleSupply SchedulePrice of CDs (\$) Quantity of CDsSupplied per month
8. 8. Supply ScheduleSupply ScheduleP (\$) Qs per month\$20 15
9. 9. Supply ScheduleSupply ScheduleP (\$) Qs per month\$20 15\$15 7
10. 10. Supply ScheduleSupply ScheduleP (\$) Qs per month\$20 15\$15 7\$10 5
11. 11. Supply Schedules and CurvesSupply Schedules and Curves• Supply Curve - a diagram showing therelationship between the price of a good andthe quantity supplied per period of time,ceteris paribus.
12. 12. Supply CurveSupply Curve
13. 13. Supply CurveSupply CurveP(\$)Qs per monthRemember to ALWAYS labelyour axes!
14. 14. Supply CurveSupply CurveP(\$)Qs per month51015200 5 10 15
15. 15. Supply CurveSupply CurveP(\$)Qs per month51015200 5 10 15A
16. 16. Supply CurveSupply CurveP(\$)Qs per month51015200 5 10 15AB
17. 17. Supply CurveSupply CurveP(\$)Qs per month51015200 5 10 15ABC
18. 18. Supply CurveSupply CurveQs per month51015200 5 10 15ABCP(\$)S
19. 19. Market Supply CurveMarket Supply Curve• Market Supply Curve - a curve showing therelationship between the price of a good andthe total quantity supplied by all firms in themarket per period of time, ceteris paribus.• Market supply curves are obtained bysumming the supply curves of individualfirms.
20. 20. Market Supply ScheduleMarket Supply Schedule• Market Supply Schedule - a table showingthe relationship between the price of a goodand the total quantity supplied by all firmsin the market per period of time, ceterisparibus.• Market supply schedules are obtained bysumming the supply curves of individualfirms.
21. 21. Market Supply ScheduleMarket Supply ScheduleP(\$) Firm AQsFirm BQsFirm CQsMarketQs5 1 3 4 810 2 8 5 1515 3 12 7 22
22. 22. Change in S vs. Change in QChange in S vs. Change in Qss• Change in Supply - a shift of the supplycurve• A supply curve is drawn under theassumption of ceteris paribus.• When this assumption is relaxed, the entiresupply curves shifts
23. 23. Change in S vs. Change in QChange in S vs. Change in Qss• Changes in Supply• Increase in supply - supply curve shifts to theright• Decrease in supply - supply curve shifts to theleft
24. 24. Change in SupplyChange in SupplyFactors Which Cause a Change in Supply• Prices of Relevant Resources• Technology• Number of Sellers• Expectations of Future Price• Taxes and Subsidies• Changes in the Availability of Credit
25. 25. Price of Relevant ResourcesPrice of Relevant Resources• Let’s say the cost of plastic (used in makingCDs) decreases• It is now cheaper to make every quantity ofCDs
26. 26. Resource Price DecreaseResource Price Decrease• So, before the cost decrease, at a price of\$20 the firm was willing to make 15 CDs. Ifcosts go down, will the firm still need \$20to make them want to supply 15 CDs?– No, in order to make the same profit they arewilling to take a lower price
27. 27. Supply CurveSupply CurveP(\$)Qs per month51015200 5 10 15AA’
28. 28. Resource Price DecreaseResource Price Decrease• Thus the firm is willing to supply everyquantity at a lower price.• Or in other words, at every price the firm iswilling to supply more of the good• In summary, if the price of a resource goesdown, supply increases (shifts to the right)
29. 29. Supply Curve ShiftSupply Curve ShiftP(\$)Qs per month51015200 5 10 15AA’Old Supply CurveNew Supply Curve
30. 30. Price of Relevant ResourcesPrice of Relevant Resources• Let’s say the cost of plastic (used in makingCDs) increases• It is now more expensive to make everyquantity of CDs
31. 31. Resource Price DecreaseResource Price Decrease• So, before the cost increase, at a price of\$15 the firm was willing to make 7 CDs. Ifcosts go up, will the firm still need \$15 tomake them want to supply 7 CDs?– No, in order to make the same profit they aregoing to need a higher price to cover the highercosts
32. 32. Supply CurveSupply CurveP(\$)Qs per month51015200 5 10 15BB’
33. 33. Resource Price DecreaseResource Price Decrease• Thus the firm is willing to supply everyquantity at a higher price.• Or in other words, at every price the firm iswilling to supply less of the good• In summary, if the price of a resource goesup, supply decreases (shifts to the left)
34. 34. Supply Curve ShiftSupply Curve ShiftP(\$)Qs per month51015200 5 10 15BB’ Old Supply CurveNew Supply Curve
35. 35. TechnologyTechnology• Improvement in technology lowers costs• Lower cost of production increases Supply• Worsening of technology increases costs• Higher cos of production decreases Supply
36. 36. Number of SellersNumber of Sellers• More sellers in the market means morequantity is being supplied at every price• Increase in supply of the good• Less sellers in the market means lessquantity is being supplied at every price• Decrease supply of the good
37. 37. Expectations of Future PricesExpectations of Future Prices• Firms expect price of their good to decreasein the future• Supply increases today• Firm would prefer to sell today when price ishigher
38. 38. Expectations of Future PricesExpectations of Future Prices• Firms expect price of their good to increasein the future• Supply decreases today• Firm would prefer to wait until the good can besold for a higher price
39. 39. Taxes and SubsidiesTaxes and Subsidies• Increase in tax on the good decreasessupply• Raises the cost of production• Decrease in tax on the good increasessupply• Lowers the cost of production
40. 40. Taxes and SubsidiesTaxes and Subsidies• A subsidy is an amount the paid to theproducer for each unit of a good produced• Increase in Subsidy on the Good IncreasesSupply• Lowers the costs of production• Decrease in Subsidy on the Good DecreasesSupply• Raises the costs of production
41. 41. Availability of CreditAvailability of Credit• If it is easier for the firm to borrow money,the firm will be able to produce more– Thus Supply increases• If it is more difficult for the firm to borrowmoney, the firm will have to produce less– Thus Supply decreases
42. 42. Change in Quantity SuppliedChange in Quantity Supplied• Change in Quantity Supplied (∆Qs) -movement along a supply curve• A change in quantity supplied can only becaused by a change in the price of the good.• Changes in Quantity Supplied• Increase in Qs - a movement to the right along asupply curve• Decrease in Qs - a movement to the left along asupply curve
43. 43. Increase in SupplyIncrease in Supply
44. 44. Increase in SupplyIncrease in SupplyPQs
45. 45. Increase in SupplyIncrease in SupplyPQsS
46. 46. Increase in SupplyIncrease in SupplyPQsS
47. 47. Increase in SupplyIncrease in SupplyPQsSS’
48. 48. Increase in QIncrease in Qss
49. 49. Increase in QIncrease in QssP(\$)Qs per month
50. 50. Increase in QIncrease in QssP(\$)Qs per monthS
51. 51. Increase in QIncrease in QssP(\$)Qs per monthAS
52. 52. Increase in QIncrease in QssP(\$)Qs per monthAS
53. 53. Increase in QIncrease in QssP(\$)Qs per monthABS