Law of Supply, Determinants of Supply, Change in Supply and Change in Quantity Supply

1. Lecture #3
Law of Supply, Determinants of Supply,
Change in Supply and Change in Quantity
Supply

2. • Supply
• Law of Supply
Supply Schedule
Supply curve
• Determinants of Supply
• Change in Supply
• Change in Quantity Supply
• Change in Supply vs. Change in Quantity Supply
remember you and I are here
“to learn from each other”
Contents….

3. Supply
• Supply is schedule or a curve that shows the
amounts of product that producers are willing
and able to make available for sale at each of
series of possible prices during specified
period of time.

4. Law of Supply
• It states that other things constant, when
price of a commodity rises, the quantity
supply for that commodity rises and when
price of a commodity falls, the quantity supply
for that commodity falls.
“Supply for a product is positively related
to its price”.
4SUPPLY AND DEMAND

5. Supply Schedule Supply Curve
Supply schedule is a table showing
the relationship between price and
quantity supply of commodity.
Supply curve is the graphical representation of
the supply schedule; it shows how much of a
good or service producer want to sell at any
given price.
Positive relationship between
price and demand
Price # Qs #
Price $ Qs $
PriceofCoke
Quantity Supply of Coke
Price of
Coke
Quantity Supply of
coke
5 2
10 4
15 6 10
5
15
2 4 6

6. Determinants of Supply
• Resource prices
• Technology
• Taxes and Subsidies
• Number of sellers
• Price expectations
Any change in these determinants causes shift in
supply curve.

7. Shifts in the Supply Curve
Supply will shift right if
– Raw materials or labor becomes cheaper
– The technology becomes more efficient
– Number of sellers increases
– Lower expected prices
– Decrease in taxes
– Increase in subsidies
Supply will shift left in opposite situation.

8. Shifts in the Supply Curve
Price
Quantity Supply0
Increase
in supply
Decrease
in supply
Supply curve, S 3
curve,
Supply
S 1
Supply
curve, S 2

9. Change in Quantity Supply
Change in quantity Supply is movement from one point to another from one
price combination to another on a fixed supply curve. An increase in quantity
supply is represented by expansion in supply curve while a decrease in quantity
supply is represented by contraction in supply curve.
Expansion Contraction

10. Change in Supply Vs. Change in Quantity Supplied
Change in price of a good or service
leads to
Change in quantity supplied
(Movement along the curve).
Change in other factors
leads to
Change in supply
(Shift of curve).
A change in supply is not the same as a change in quantity supplied.