elements of supply micro economics report

1. Elements Of Supply

2. SUPPLY
It is defined as the maximum units/
quantity of goods and services producers
can offer. The quantity supplied refers to
the amount or quantity of goods and
services producers are willing and able to
supply at a given price, at a given period of
time.

3. DETERMINANT OF SUPPLY
1. Changes in Technology. State of the art technology that uses
high-tech machines increases the quantity of supply of goods which
causes the reduction of cost of production.
2. Costs of Inputs Used. An increase in the price of an input or the
cost of production decreases the quantity supplied because the
profitability of certain business decreases.
3. Expectation of Future Price. When producers expect higher
prices in the future commodities, the tendency is to keep their
goods and release them when the price rises. Inversely, supply for
such goods decreases if producers expect prices to decline in the
future

4. 4. Changes in the Price of Related Goods. Changes in the price of
goods have a significant effect in the supply of such goods.
5. Government Regulation and Taxes. Taxes imposed by the
government increases cost of production which in turn
discourages production because it reduces producer’s earnings.
6. Government subsidies. Subsidies or the financial aid/
assistance given by the government encourage more supply.
7. Number of Firms in the Market. An increase in the number of
firms in the market leaders to an increase in supply of goods and
services.

5. SUPPLY SCHEDULE
It is the relationship between the
quantity of a good supplied and its price.
Other factors that may affect the quantity
supplied, such as the prices of inputs and
available production techniques, are held
constant in drawing up the supply schedule.

6. SUPPLY CURVE
It shows graphically the
quantity of a good supplied each
price, with other factors that affect
quantity supplied held constant.
The supply curve is typically
upward sloping.

7. Supply Curve
Price Quantity
5 18
4 16
3 12
2 7
1 0
0
1
2
3
4
5
6
0 5 10 15 20
Series1

8.  Technology
 Input prices
 Prices of related goods
 Government policy
 Special influences
Factors effect the Supply curve

9. LAW OF SUPPLY
It states that as prices increases, quantity
supplied also increases; and as prices decreases,
quantity supplied also decreases. This means that the
higher the price of certain good and service, the higher
the quantity supplied. This is because producers tend
to supply more at a higher price because it could give
them more profit.

10. VALIDITY OF LAW OF SUPPLY
The law of demand is only true if
the assumption of ceteris paribus is
applied. This means there is no
change in the non-price determinants
of supply.

11.  Changes in Quantity Supplied (movement
along the supply curve). It shows the movement
from one point to another on the same supply curve.
 Changes in Supply (shifting from one supply
curve to another). This is brought by a change in all
determinants. A shifting of the supply curve to the
right indicates that there is an increase in
supply, and shifting to the left indicates decrease in
supply.
CHANGES INVOLVING SUPPLY

12. Market Equilibrium it is a state which implies a
balance between demand and supply, a situation in which
quantity demanded and quantity supplied are equal. In
other words, the quantity that the consumers will buy is
equal to the amount or quantity the producers are able
and willing to offer. This condition persists to stay at the
same level, as long as other things remain constant or
unless there is something that causes change in the
demand and supply. Once these variables that determine
demand and supply curve change, the equilibrium will also
change.
DETERMINATION OF MARKET EQUILIBRIUM
(Intersection of Demand and Supply)

13. Points
Price
(PhP ‘000)
Quantity
Demanded
Quantity
Supplied
State of Market Pressure on Price
A 1 1000 200
Shortage
(-800)
Upward
B 2 800 400
Shortage
(-400)
Upward
C 3 600 600
Equilibrium
(0)
Neutral / Equal
D 4 400 800
Surplus
(+400)
Downward
E 5 200 1000
Surplus
(+800)
Downward

14. is a condition when quantity
supplied is greater than the
quantity demanded. The price is
greater than the equilibrium. A
surplus situation creases forces
among suppliers which cause a
downward pressure on price.
Surplus

15. Quantity
Price
S
D
Excess Supply
or Surplus
3
11
Excess Supply or Surplus

16. Occurs when the price is set below the
equilibrium price. It is a condition where the
quantity demanded is greater than the
quantity supplied. Hence, in this
condition, competitions among consumers for
goods causes prices to rise.
Shortage

17. Quantity
Price
S
D
Excess Demand
Or shortage
Excess Demand Or shortage
3
11

18. Quantity
S
D
Price Ceiling
price
Price Control: in
which govt. restrict to
suppliers and give
them limits to charge
In price Ceiling
maximum amount
restriction
Price Ceiling
3
5
10 15

19. Quantity
S
D
Price Floor
In price Floor minimum
amount restriction
8
5
10 20
price Price Floor

20. Demand and supply
shift
Effect on price and
quantity
If demand rise The demand curve shift to
the right
P
Q
If demand Falls The demand curve shift to
the left
P
Q
If supply rise The supply curve shift to
the right
P
Q
If supply Falls The supply curve shift to
the left
P
Q
Demand and supply curve shifts and
there effects on price and quantity

21. Quantity
Price
S
D
D’
Increase in Demand, Rightward shift

22. Shift in Equilibrium
Quantity
Price
S
D
S’
Increase in
supply, Rightward
shift

23. Salamas po