Upcoming SlideShare
×

# Supply

343 views

Published on

0 Likes
Statistics
Notes
• Full Name
Comment goes here.

Are you sure you want to Yes No
• Be the first to comment

• Be the first to like this

Views
Total views
343
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
8
0
Likes
0
Embeds 0
No embeds

No notes for slide
• Instructor Notes:
The table shows the supply schedule of tapes. For example, at \$2 a tape, 3 million tapes a week are supplied; at \$5 a tape, 6 million tapes a week are supplied.
• Instructor Notes:
1) The supply curve shows the relationship between the quantity supplied and price, everything else remaining the same.
2) The supply curve usually slopes upward: As the price of a good increases, so does the quantity supplied.
3) A supply curve can be read in two ways. For a given price, it tells us the quantity that producers plan to sell.
4) And for a given quantity, it tells us the minimum price that producers are willing to accept for that quantity.
• Instructor Notes:
1) The new supply curve intersects the new demand curve at \$3 a tape, the same price as before, but the quantity increases to 8 million tapes a week.
2) These increases in demand and supply increase the quantity but leave the price unchanged.
• Instructor Notes:
1) The new supply curve intersects the new demand curve at \$3 a tape, the same price as before, but the quantity increases to 8 million tapes a week.
2) These increases in demand and supply increase the quantity but leave the price unchanged.
• ### Supply

1. 1. Lecture 5 Market Supply And Market Equilibrium •Supply: Quantity Supplied and Changes in Supply •Demand and Supply Equilibrium
2. 2. Supply • If a firm supplies a good or service, the firm – Has the resources and technology to produce it, – Can profit from producing it, and – Has made a definite plan to produce it and sell it.
3. 3. What determines selling plans? – The price of the good – The prices of resources used to produce the good – Technology – The number of suppliers – The prices of related goods produced – Expected future prices
4. 4. •The relationship between the amount supplied of a good and the good’s price Quantity Supplied •The relationship between the amount supplied of a good and everything else Changes in Supply
5. 5. Supply • The quantity supplied of a good or service is the amount that producers plan to sell during a given time period at a particular price.
6. 6. • The Law of Supply – Ceteris Paribus, the higher the price of a good, the greater is the quantity supplied; And Vice Versa
7. 7. WHY? The Reason for the Law • Increasing marginal (opportunity) cost (recall lecture 2)
8. 8. Price (dollar per CD) Marginal Cost MC 5 4 3 2 1 0 1 2 3 4 5 CDs (millions per month)
9. 9. Supply Schedule and Supply Curve Supply schedules list the quantities supplied at alternative prices Supply curves are graphs of supply schedules
10. 10. Supply Schedule Price Quantity (dollars per CD) (millions of CDs per week) a 1 0 b 2 3 c 3 4 d 4 5 e 5 6
11. 11. Price (dollar per CD) Supply Curve 6 Supply of CDs 5 e 4 d 3 c 2 1 0 b a 2 4 6 8 10 CDs (millions per month)
12. 12. Price A Price Increase S0 P1 P0 Q0 Q1 Quantity
13. 13. Supply • A Change in Supply – When any factor that influences selling plans changes, other than the price of the good, there is a change in supply.
14. 14. Demand An increase in supply causes the supply curve to SHIFT RIGHTWARD
15. 15. Price Increase in supply S0 S1 Quantity
16. 16. Demand A decrease in supply causes the supply curve to SHIFT LEFTWARD
17. 17. Price Decrease in Supply S2 S0 Quantity
18. 18. Changes in Supply Are Caused by – The prices of resources used to produce the good – Technology – The number of suppliers – The prices of related goods produced – Expected future prices
19. 19. Consider the First 3 and an Increase in Supply • Price of Productive Resources -higher or lower? • Technology -- better or worse? • The Number of Suppliers -- more or fewer?
20. 20. Increase in Supply • Price of Productive Resources -- lower! • Technology -- better! • The Number of Suppliers -- more!
21. 21. Price Increase in supply S0 S1 Quantity
22. 22. • Price of Related Goods Produced – Complements in Production If the price of leather increases, what happens to the Supply of beef?
23. 23. Price Supply of Beef? Increase in supply S0 S1 Quantity
24. 24. • Price of Related Goods Produced – Substitutes in Production If the price of shirts increases, what happens to the supply of Dresses?
25. 25. Price Decrease in Supply S2 S0 Quantity
26. 26. WHICH LEAVES…. A Change in Supply Expected Future Prices
27. 27. A Change in Supply COLD WEATHER: significantly reduces Florida orange crop Concentrated Orange juice stored to take advantage of higher future price.
28. 28. Price Decrease in Supply S2 S0 Quantity
29. 29. Market Equilibrium Having Now Considered Demand and Supply Put them together to consider Market Equilibrium
30. 30. Market Equilibrium • Equilibrium price: price at which quantity demanded equals quantity supplied. • Equilibrium quantity: quantity bought and sold at the equilibrium price.
31. 31. Price (dollar per CD) Market Equilibrium at the intersection of demand & supply curves 6 Supply of CDs 5 4 3 2 Demand for CDs 1 0 2 4 6 8 10 CDs (millions per month)
32. 32. • Shortages and Surpluses generate the pressures for the emergence of the equilibrium price – price too low creates a Shortage: price will be forced up – price too high creates a Surplus: price will be forced down
33. 33. Price (dollar per CD) Market Equilibrium 6 Supply of CDs 5 4 3 2 shortage 1 0 Demand for CDs 2 3 4 6 8 10 CDs (millions per month)
34. 34. Price (dollar per CD) Market Equilibrium 6 surplus 5 Supply of CDs 4 3 2 Demand for CDs 1 0 2 3 4 5 6 8 10 CDs (millions per month)
35. 35. How Does Equilibrium Change When Demand and Supply change There are 8 Combinations of Changes Rule 1: Compare the initial equilibrium point to the new one! Rule 2: Analytical tools are your friends, USE THEM!
36. 36. Example Supply decreases and demand decreases What happens to price and quantity?
37. 37. Price (dollar per ?) The Effects of a Decrease in Both Demand and Supply 6 5 4 Price Constant? Not Necessarily Quantity Falls 3 2 1 0 2 4 6 8 10 12 14 Quantity (millions of ? per week)
38. 38. Price (dollar per ?) The Effects of a Decrease in Both Demand and Supply 6 5 4 3 2 1 0 2 4 6 8 10 12 14 Quantity (millions of ? per week)