Overview of the basics of Supply emphasizing the non-price determinants of Supply and the difference between Supply and Quantity Supplied

1. Supply
Introduction to Supply
and the factors that
determine supply

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

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

4. 0
2
4
6
8
10
12
20 40 60 80 100
Quantity
Price
S
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.
Supply

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

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

7. Supply
Variables that cause a change in supply are called
(Non-Price) Determinants of Supply
Cost of Resources
The number of items producers are willing to sell is determined by how many resources they have to make
them. 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. Supply
Variables that cause a change in supply are called
(Non-Price) Determinants of Supply
Technology
As new inventions or developments in technology are realized, production with the same
number of resources will increase.

9. PPC
0
1
2
3
4
5
6
0 10 20 30 40 50
Item B
Item
A
0
2
4
6
8
10
12
20 40 60 80 100
Quantity
Price
S
S1
Supply
Variables that cause a change in supply are called
(Non-Price) Determinants of Supply
Technology
Remember that new technology also has an effect on production possibilities.

10. Supply
Variables that cause a change in supply are called
(Non-Price) Determinants of Supply
Expectations
Predictions help producers decide how much to produce at a given time.
Producers will withhold inventory now if they know that prices will rise in the future.
Instead they will save or store their resources.
Producers will offer more for sale now if they know that prices will fall in the future.

11. Supply
Variables that cause a change in supply are called
(Non-Price) Determinants of Supply
Number of Sellers
Quite simply, if there are more producers, more items will be available (and the opposite as
well).

12. Supply
Variables that cause a change in supply are called
(Non-Price) 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. Supply
Variables that cause a change in supply are called
(Non-Price) 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. Supply
Variables that cause a change in supply are called
(Non-Price) 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, solar panels on homes)

15. Supply
Variables that cause a change in supply are called
(Non-Price) Determinants of Supply
Government Policies
Government will pass laws or make rules in order to influence businesses’ and people’s
behaviors.
When government chooses to regulate (implement stricter laws/rules) the new laws or rules
will usually decrease production (supply will decrease).
When government chooses to deregulate (loosen the rules) it will usually increase production
(supply will increase).

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

18. 0
2
4
6
8
10
12
20 40 60 80 100
Quantity
Price
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)
The Quantity
Supplied
changed from
60 to 40

19. Equilibrium