Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Individual Markets: Demand and Supply

Chapter 3

Demand and Supply

Supply

Demand and Supply

• Supply

• A schedule, which shows the various amounts of a product, which producers are willing and able to sell, at each possible price, during a specified time period.

Law of Supply

• Ceteris Paribus, there is a direct relationship between price and quantity supplied.

Ceteris Paribus

• Ceteris Paribus, means

Holding everything else constant, so that we can ignore it.

Law of Supply

• So if everything else in the universe is ignored:

• When prices rise, quantity supplied rises.

• When prices fall, quantity supplied falls.

Supply vs. Quantity Supplied

• Supply – Shows what producers are willing and able to

produce and sell at a variety of prices.

• Quantity Supplied– Shows the amount producers sell at one specific

price.

Supply vs. Quantity supplied

• In a market, there is a range of prices.

• For each price, there is a unique and corresponding quantity supplied.

• Therefore: supply is made up of a whole series of quantities supplied.

Data for Supply Curve

Price of Lobster Quantity Supplied

25 1000

20 800

15 600

10 400

5 200

Supply Curve

051015202530

200 400 600 800 1000

Quantity Demanded

Pri

ce o

f L

ob

ster

AB

CD

E

Determinants of Supply

• Price

• Input Prices

• Prices of Related Products

• Number of Sellers

• Technology

• Regulations, taxes, subsidies

• Weather


• Price

Law of Supply tells us the relation between prices and quantities supplied.


• Input Prices

• The prices of all of the materials of production, such as wages, raw materials, software and energy, all strongly affect supply.


• Input Prices

• If the price of any input declines, then the costs of production decline and supply increases.



• This applies to producers who can produce more than one product.– For example:– Soybeans vs. corn; or different shampoo

products



• As prices shift, producers will change their product line to stay profitable.


• Number of sellers

• Increase the number of sellers, and supply rises.

• Decrease the number of sellers, and supply falls.


• Technology

• Over time, technology has lowered the costs of production, resulting in lower prices.


• Regulations, taxes, and subsidies

• Federal, state and local government regulations, taxes and subsidies can impact costs.


• Regulations, taxes, and subsidies

• Note: studies have shown that in nearly Note: studies have shown that in nearly all cases, a company’s decision to move is all cases, a company’s decision to move is not affected by local taxes.not affected by local taxes.


• Weather

• Clearly weather affects the supply of agricultural products.

• It can also affect transportation as well.


• Expectations

• People’s expectations about the future can shape supply in the present.

• (Note that economists are having difficulty proving exactly how).

Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Documents

supply supply slide

supply shows

supply rises

supply falls

supply chapter

supply increases

determinants of supply

law of supply ceteris