An introduction to Supply and the factors that determine supply.

1. Introduction to Supply and the
factors that determine supply

2. Through various incentives, PRODUCERS
seek to maximize their profits
Producers want to make the
most money possible
The behavior of producers is called . . .

3. • The amount producers are willing to sell at ALL prices.
• The ENTIRE schedule or curve is the supply
12
Price Quantity 10
10 100 8 S
Price
8 80 6
6 60 4
4 40 2
0
2 20 20 40 60 80 100
Quantity

4. 12
10
8 S
Price
6
4
2
0
20 40 60 80 100
Quantity
• ALWAYS has a positive slope
• It shows a positive relationship between price
and quantity
• Therefore, the law of supply states that, all things
equal, as price rises, quantity supplied rises, and as
price falls, quantity supplied falls.

5. 12
S2
10
8 S
Price
6 S1
4
2
0
20 40 60 80 100
Quantity
• Sometimes, the supply for a product will change, at
ALL prices
• It may cause an increase in supply,
• or a decrease in supply

6. Variables that cause a change in supply are called
Determinants of Supply
They are: Cost of Resources
(Input Prices)
Technology
Expectations
Number of Sellers
Productivity
Taxes / Subsidies
Government Policies

7. Determinants of Supply
Cost of Resources (Input Prices)
The number of items producers are willing to sell is
determined by how many resources they have. Simply,
the more resources, the more that can be produced.
If the cost of the resources increases, the number of
items that can be produced decreases; if the cost of
resources decreases, the number of items that can be
produced increases.
If the cost of inputs rises substantially, a producer may
be forced to shut down production.

8. Determinants of Supply
Technology
As new inventions or developments in technology are
realized, production with the same number of resources
will increase.

9. Determinants of Supply
Technology
Remember that new technology also has an effect on
production possibilities.
12
PPC
10
6
8 S
5
Price
4 6 S1
Item A
3
4
2
1 2
0
0 10 20 30 40 50 0
20 40 60 80 100
Item B
Quantity

10. Determinants of Supply
Expectations
Predictions help producers decide how much to
produce at a given time.
• Producers will put off production now if they know
that prices will rise in the future. Instead they will save
or store their resources.
• Producers will increase production now if they know
that prices will fall in the future.

11. Determinants of Supply
Number of Sellers
Quite simply, if there are more producers, more items
will be available (and the opposite as well).

12. Determinants of Supply
Productivity
This refers to how much each worker (or resource)
contributes to production.
Businesses spend money on making workers more
productive by investing in human capital
Human Capital includes job training, and fringe benefits
(non-money benefits such as health care, paid
vacation, etc.)

13. Determinants of Supply
Taxes / Subsidies
Government will use money to encourage or
discourage the production of goods and services.
A tax is a payment paid to government for using a good
or service or for a type of transaction
Government will tax items that the government wants
people to produce and buy less of (for
example, cigarettes)

14. Determinants of Supply
Taxes / Subsidies
Government will use money to encourage or
discourage the production of goods and services.
A subsidy is a government payment to producers or
consumers in exchange for certain actions
Government will give subsidies to businesses that
produce things that the government wants to see more
of (for example, hybrid automobiles)

15. Determinants of Supply
Government Policies
Government will pass laws or make rules in order to
regulate businesses’ behavior.
When the new laws or rules are more strict it will
usually decrease production (supply will decrease).
When government chooses to deregulate (loosen the
rules) it will usually increase production (supply will
increase).

17. Quantity Supplied is a specific point on the curve or
schedule.
12
12
10
10
Supply
8
8 S
Price
Price
6
6
4
4
Quantity
2 2 Supplied at $6
0
20 40 60 80 100 0
Quantity 20 40 60 80 100
Quantity
Price Quantity
Quantity
10 100 Price Quantity
Supply Supplied at $6
8 80 6 60
6 60
4 40
It shows the quantity of an item that will be
2 20
produced at a single given price

18. 12
10
8
Price
6
4
The Quantity
2 Supplied
0 changed from
20 40 60 80
60 to 40
100
Quantity
• A change in the quantity supplied results in a move
from one point to another
• all things equal, this is caused by a change in the
price (not one of the determinants of supply)

19. Equilibrium