Supply
Module 3

Supply
It refers to the
quantity of goods
that a seller is
willing to offer for
sale

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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Supply in
Product/Output
Markets
•Supply decisions
depend on profit
potential.
•Profit
•is the difference
between revenues
and costs.
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Quantity Supplied
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• 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
CLARENCE BROWN'S
SUPPLY SCHEDULE
FOR SOYBEANS

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• is a table
showing how
much of a product
firms will supply at
different prices.
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
CLARENCE BROWN'S
SUPPLY SCHEDULE
FOR SOYBEANS
Supply Schedule

C
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Demand,
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Market
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Supply
Schedule
it shows the
different
quantities
the seller is
willing to sell
at various
prices.

C
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Demand,
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and
Market
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
states that
there is a
positive
relationship
between
price and
quantity of
a good
supplied.

C
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Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
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and
Market
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
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Points Quantity Supplied Price
A 40 2
B 60 4
C 80 6
D 100 8
E 120 10

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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Determinants of Supply
•1. Price Factor
• The price of the good or service.
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Shift of Supply Versus
Movement Along a Supply Curve
• A higher price
causes higher
quantity supplied,
and a move along
the demand curve.

C
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Other Determinants of
Supply
•2. Non=Price Factor
•1. The Price of
production inputs or
cost of producing the good,
which in turn depends on:
•The price of required
inputs (labor, capital, and
land) 12 of 48

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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•2. The technologies
that can be used to
produce the
product.
•3. The prices of
related products.
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•4. Taxes – Business
establishments are
required to pay a
number of taxes to
various levels of
government.
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
5. Expectation
•The expectation
or anticipation of
what will happen
on the price of
the commodity
can also
influence the
amount supplied
in the market.
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Shift of Supply Versus
Movement Along a Supply Curve
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• A change in
determinants of supply
other than price causes
an increase in supply,
or a shift of the entire
supply curve, from SA to
SB.

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• The technological
advance means that
more output can be
supplied for at any
given price level.
Shift of Supply Curve for Soybeans
Following Development of a New Seed
Strain

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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
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To summarize:
Change in price of a
good or service
leads to Change in
quantity supplied
(Movement along
the curve).
Shift of Supply Versus
Movement Along a Supply Curve

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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
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To summarize:
Change in costs, input prices,
technology, or prices of
related goods and services
leads to
Change in supply
(Shift of curve).
Shift of Supply Versus
Movement Along a Supply Curve

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Demand,
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
From Individual
Supply to Market 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.
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C
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Demand,
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
From Individual
Supply to 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.
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
MARKET EQUILIBRIUM
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C
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Demand,
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
MARKET
EQUILIBRIUM
• When the
supply and
demand curves
intersect, the
market is in
equilibrium.
• This is where
the quantity
demanded and
the quantity
supplied are
equal.
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C
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•The intersection of
supply and demand
determines the
equilibrium price and
quantity.
•The equilibrium occurs
where the quantity
demanded is equal to
the quantity supplied.
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Schedule of Market Equilibrium
Points QD Price QS
A 60 30 180
B 90 25 150
C 120 20 120
D 150 15 90
E 180 10 60
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C
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• Computation:
•QD = 240 – 6P
•QS = 0 + 6P
•QD = QS
•240 – 6P = 0 + 6P 26 of 48

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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• Computation:
• 240 – 6P = 0 + 6P
• -6P – 6P = -240 + 0
• - 12P = -240
• -12 P/ 12 = -240/ 12
• P = 20 Price Equilibrium
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C
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• QD = 240 – 6P
• QD = 240 – 6 (20)
• QD = 240 – 120
• QD = 120
• Marke
Equilibrium
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QS = 0 + 6P
QS = 0 + 6 (20)
QS = 0 + 120
QS= 120

C
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and
Market
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
GRAPH
• P
• 30 Price Equilibrium
• 25
• 20 Market Equilibrium
• 15
• 10
•
• 30 60 90 120 150 180
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© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
ACTIVITY
Points QD Price QS
A 30 15 90
B 45 12 75
C 60 9 60
D 75 6 45
E 90 3 30
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C
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3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
EXCESS OF DEMAND
•If the price is
below the
equilibrium level,
then the quantity
demanded will
exceed the
quantity
supplied.
•Excess demand
or a shortage will
exist.
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C
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3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
EXCESS OF SUPPLY •If the price is
above the
equilibrium level,
then the quantity
supplied will
exceed the
quantity
demanded.
•Excess supply or a
surplus will exist.
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C
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3:
Demand,
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• In either case,
economic pressures
will push the price
toward the
equilibrium level.
•A change in supply,
demand, or both,
will necessarily
change the
equilibrium price,
quantity, or both.
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C
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•It is highly
unlikely that the
change in supply
and demand
perfectly offset
one another so
that equilibrium
remains the
same.
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C
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and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
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