Demand & Supply

(Supply)
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Supply
• Behaviour of sellers
• Relationship between
– Quantity supplied of a good
– Price
– Holding other factors constant
• The relationship that exists between the price of a good
and the quantity supplied in a given time period, ceteris
paribus.
0 20 40 60
4
3
2
1
Price
Quantity
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Supply in Output Markets
• A supply schedule is a table
showing how much of a product
firms will supply at different prices.
• Quantity supplied represents the
number of units of a product that a
firm would be willing and able to offer
for sale at a particular price during a
given time period.
PRICE
(PER
BUSHEL)
QUANTITY
SUPPLIED
(THOUSANDS
OF BUSHELS
PER YEAR)
$ 2 0
1.75 10
2.25 20
3.00 30
4.00 45
5.00 45
JORDAN 'S SUPPLY
SCHEDULE FOR
SOYBEANS

The Supply Curve and the Supply Schedule
• A supply curve is a graph illustrating how much of a product a
firm will supply at different prices.
0
1
2
3
4
5
6
0 10 20 30 40 50
Priceofsoybeansperbushel($)
Thousands of bushels of soybeans
produced per year
PRICE
(PER
BUSHEL)
QUANTITY
SUPPLIED
(THOUSANDS
OF BUSHELS
PER YEAR)
$ 2 0
1.75 10
2.25 20
3.00 30
4.00 45
5.00 45
JORDAN 'S SUPPLY
SCHEDULE FOR
SOYBEANS

The Law of Supply
• There is a direct relationship
between price and quantity
supplied.
– Quantity supplied rises as
price rises, other things
constant.
– Quantity supplied falls as
price falls, other things
constant.
0
1
2
3
4
5
6
0 10 20 30 40 50
Thousands of bushels of soybeans
produced per year
Priceofsoybeansperbushel($)
If the price of a good
then the Qs

• Changes in price causes changes in quantity supplied
represented by a movement along a supply curve.
• A movement along a supply curve – the graphic
representation of the effect of a change in price on the
quantity supplied.
• If the amount supplied is affected by anything other than
a change in price, there will be a shift in supply.
• Shift in supply – the graphic representation of the
effect of a change in a factor other than price on supply.
Shifts in Supply Versus Movements Along a
Supply Curve

Change in quantity
supplied (a movement
along the curve)
Change in Quantity Supplied
Price(perunit)
Quantity supplied (per unit of time)
S0
$15
A
1,250 1,500
B

Shift in Supply
Price(perunit)
Quantity supplied (per unit of time)
S0
Shift in Supply
(a shift of the
curve)
S1
$15
A B
1,250 1,500

Changes in Supply
• If other factors do change,
– Change in supply
– Shift to a new supply curve
• Increase in supply
– increase in Qs at every price
– supply curve shifts to the right
• Decrease in supply
– decrease in Qs at every price
– supply curve shifts to the left
0 20 40 60
4
3
2
1
Price
Quantity
Increasing in supply
2
1
0 1 2 3
Decrease in supply

Factors affecting supply
• Other factors besides price
affect how much will be
supplied:
– Prices of inputs used in
the production of a
good.
– Technology.
– Suppliers’ expectations.
– Taxes and subsidies.
– Prices of related goods
Supply
Resource
Prices
Technology
And
Productivity
Expectations
Of
Producers
Number
Of
Producers
Prices of
Related
Goods and
Services

• Resource price
– When costs go up, profits go down, so that the incentive to supply
also goes down.
– If the price of crude oil (a resource or input into gasoline production)
increases, the quantity supplied of gasoline at each price would
decline, shifting the supply curve to the left.
• 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.
– If a new method or technique of production is developed, the cost of
producing each good declines and producers are willing to supply
more at each price - shifting the supply curve to the right.
• Price Expectations
– Expectations about the future price will shift the supply.
– If suppliers expect prices to rise in the future, they may store today's
supply to reap higher profits later.

• Number of sellers
– As more people decide to supply a good the market supply increases.
– If more companies start to make motorcycles, the supply of
motorcycles would increase. If a motorcycle company goes out of
business, the supply of motorcycles would decline, shifting the
supply curve to the left.
• Prices of other goods
– If the price of wheat increases relative to the price of other crops that
could be grown on the same land, such as potatoes or corn, then
producers will want to grow more wheat, ceteris paribus. By
increasing the resources devoted to growing wheat, the supply of
other crops will decline. Goods that are produced using similar
resources are substitutes in production.
– Complements in production are goods that are jointly produced.
Beef cows provide not only steaks and hamburger but also leather
that is used to make belts and shoes. An increase in the price of
steaks will cause an increase in the quantity supplied of steaks and
will also cause an increase (or shift right) in the supply of leather
which is a complement in production.

Individual supply & Market supply
• Individual supply
• The supply of a good or service can be defined for an individual
firm, or for a group of firms that make up a market or an industry.
• Supply curve for One supply
• Market supply
• Market supply is the sum of all the quantities of a good or
service supplied per period by all the firms selling in the market for
that good or service.
• Supply curve for all sellers
• Add up individual Qs for each price
• The market supply curve is derived by horizontally adding the
individual supply curves of each supplier.

Market Supply
• As with market demand, market supply is the horizontal
summation of individual firms’ supply curves.

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