The document discusses the economic concepts of supply, determinants of supply, the law of supply, supply schedules and curves, market versus individual supply, equilibrium of supply and demand, and how shifts in supply and demand curves impact equilibrium price and quantity. It provides examples of supply and demand schedules and equilibrium, and how excess supply or demand can lead to changes in price until equilibrium is restored. It also includes 10 examples of how changes in factors can shift supply and demand curves and impact price and quantity.

2. SUPPLY
Quantity supplied of any good is the
amount that sellers are willing to
sell in the market

3. Determinants or factors
affecting of supply:
 Price of goods
 Input prices(land, labor, capital, raw material)
 Technology
 Expectations
 Number of sellers (Market supply curve)
 Govt Policies
 Price of related goods
 Seasonal Changes

4. Law of Supply:
 Other things equal, the quantity supplied of
a good rises when the price of the good rises.
 Quantity supplied is positively related to the
price of the good
 Supply schedule is a table that shows the
relationship between the price of a good and
the quantity supplied
 Supply curve graphs the supply schedule. It
is upward sloping

5. Supply Schedule
 A supply schedule is a table that shows the quantities
producers are willing to supply at various prices
Price per Widget ($) Quantity Supplied of
Widget per day
$5 10
$4 8
$3 6
$2 4
$1 2

6. What do you notice about the supply
curve?
How would you describe the slope of the
supply curve?
Do you think that price and quantity
supplied tend to have this relationship?
$0
$1
$2
$3
$4
$5
$6
0 2 4 6 8 10 12
PriceperWidget
Quantity Supplied of Widgets
Supply Curve for Widgets
Supply Curve

7. Supply curve

8. Market Versus Individual Supply
 Market supply is derived by horizontally
summing the individual supply curves
 Market supply curve shows how the quantity
supplied varies as the price of the good varies
 Any change that varies the quantity supplied at
a given price shifts the supply curve
 Changes in price that varies the quantity
supplied in the market is represented as a
movement along the supply curve

9. SUPPLY AND DEMAND
 How do supply and demand combined
together determine the quantity and price
of a good sold in the market?
 Supply and demand curves intersect. At this
equilibrium price quantity supplied equals
quantity demanded
 Equilibrium is a situation in which supply
equals demand
 Equilibrium price is also called as the market
clearing price as quantity supplied equals
quantity demanded

10. SUPPLY AND DEMAND
What happens when market price is
not equal to the equilibrium price?
 Excess supply- surplus in the market
 Excess demand- shortage in the market
Free markets reach equilibrium through
the interaction of buyers and sellers and
price is the tool through which the
market is cleared

11. Market Equilibrium
 The operation of the market depends on the
interaction between buyers and sellers.
 An equilibrium is the condition that exists when
quantity supplied and quantity demanded are equal.
 At equilibrium, there is no tendency for the market
price to change.

12. Market Equilibrium
 Only in equilibrium is
quantity supplied equal
to quantity demanded.
• At any price level
other than P0, the
wishes of buyers
and sellers do not
coincide.

13. Market Disequilibrium
 Excess demand, or
shortage, is the condition
that exists when quantity
demanded exceeds
quantity supplied at the
current price.
• When quantity demanded
exceeds quantity supplied, price
tends to rise until equilibrium is
restored.

14. Market Disequilibria
 Excess supply, or
surplus, is the condition
that exists when quantity
supplied exceeds quantity
demanded at the current
price.
• When quantity supplied exceeds
quantity demanded, price tends to
fall until equilibrium is restored.

15. Increases in Demand and Supply
 Higher demand leads to
higher equilibrium price and
higher equilibrium quantity.
 Higher supply leads to
lower equilibrium price and
higher equilibrium quantity.

16. Decreases in Demand and Supply
 Lower demand leads to
lower price and lower
quantity exchanged.
 Lower supply leads to
higher price and lower
quantity exchanged.

17. Relative Magnitudes of Change
• The relative magnitudes of change in supply and demand determine the
outcome of market equilibrium.

18. Relative Magnitudes of Change
• When supply and demand both increase, quantity will increase, but
price may go up or down.

19. Extra Examples of change in
demand and supply

20. 1. The income of the Chapel Hill townies declines
after an early loss during March Madness.
Quantity
Price
D
S
D1
P1
Q1
P2
Q2

21. 2. Chapel Hill is named one of the most
beautiful towns in North Carolina and tourism
doubles
Quantity
Price
D
S
D1
P2
P1
Q1 Q2

22. 3. The price of blue ties decreases. (Blue ties
are a substitute good for purple ties)
Quantity
Price
D
S
D1
P1
Q1
P2
Q2

23. 4. The Federal government has been warning the
public about the possibility of a recession and job loss
in the RDU area. (Think expectations!)
Quantity
Price
D
S
D1
P1
Q1
P2
Q2

24. 5. The price of purple striped shirts decreases (Purple
striped shirts are a complement to purple ties)
Quantity
Price
D
S
D1
P1
Q1
P2
Q2

25. 6. The price of silk increases (ties are made with
silk).
Quantity
Price
D
S
P2
S1
P1
Q2 Q1

26. 7. The government adds a subsidy to tie
production.
Quantity
Price
D
S
S1
P1
Q1
P2
Q2

27. 8. After the release of Alan Greenspan’s first jazz flute
album, purple tie producers are expecting a huge
increase in demand and thus an increase in the price.
Quantity
Price
D
S
S1
P1
Q1
P2
Q2

28. 9. Congress enacts new tax on the production of
purple ties.
Quantity
Price
D
S
S1
P1
Q1
P2
Q2

29. 10. As the popularity of purple ties sweeps the greater
Orange County area, new producers enter the purple
tie market.
Quantity
Price
D
S
S1
P1
Q1
P2
Q2

30. 11. Purple ties are named by GQ magazine as a “must have”
for all young professionals. At the same time, a new textile
machine decreases the cost of producing purple ties.
Quantity
Price
D
S S1
D1
P1
Q1 Q2

31. 12. The price of pink ties (a related good that most purple tie producers also
produce) rises as spring approaches. Tie consumers in Chapel Hill begin to
expect purple ties to be put on sale since spring is coming, so they put off
purchasing.
Quantity
Price
D
S
S1
D1
P1
Q1Q2