Supply How Markets Work?PRESENTED BY:SURABHI PARASHAR (1924)YUVNIKA SOGANI (1939)
SUPPLY• Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period.
Determinants of Supply• What factors determine how much ice cream you are willing to offer or produce?Product’s Own PriceInput pricesTechnologyExpectationsNumber of sellers
PriceLaw of Supply – The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises.
The Supply Schedule and the Supply Curve The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied. The supply curve is a graph of the relationship between the price of a good and the quantity supplied. Ceteris Paribus: “Other thing being equal”
Market Supply Schedule• Market supply is the sum of all individual supplies at each possible price.• Graphically, individual supply curves are summed horizontally to obtain the market demand curve.• Assume the ice cream market has two suppliers as follows…
Price of Inputs (Resource Prices)• When costs go up, profits go down, so that the incentive to supply also goes down.
Technology• Advances in technology reduce the number of inputs needed to produce a given supply of goods.• Costs go down, profits go up, leading to increased supply.
Expectations• If suppliers expect prices to rise in the future, they may store todays supply to reap higher profits later.
Number of Suppliers• As more people decide to supply a good the market supply increases (Rightward Shift).
Price of Related Goods or Services• The opportunity cost of producing and selling any good is the forgone opportunity to produce another good.• If the price of alternate good changes then the opportunity cost of producing changes too!• Example Mc Don selling Hamburgers vs. Salads.
Taxes and Subsidies• When taxes go up, costs go up, and profits go down, leading suppliers to reduce output.• When government subsidies go up, costs go down, and profits go up, leading suppliers to increase output.