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Page 1: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Individual Markets: Demand and Supply

Chapter 3

Page 2: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Demand and Supply

Supply

Page 3: 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.

Page 4: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Law of Supply

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

Page 5: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Ceteris Paribus

• Ceteris Paribus, means

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

Page 6: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Law of Supply

• So if everything else in the universe is ignored:

• When prices rise, quantity supplied rises.

• When prices fall, quantity supplied falls.

Page 7: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

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.

Page 8: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

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.

Page 9: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Data for Supply Curve

Price of Lobster Quantity Supplied

25 1000

20 800

15 600

10 400

5 200

Page 10: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Supply Curve

051015202530

200 400 600 800 1000

Quantity Demanded

Pri

ce o

f L

ob

ster

AB

CD

E

Page 11: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Price

• Input Prices

• Prices of Related Products

• Number of Sellers

• Technology

• Regulations, taxes, subsidies

• Weather

Page 12: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Price

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

Page 13: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Input Prices

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

Page 14: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Input Prices

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

Page 15: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Prices of Related Products

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

products

Page 16: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Prices of Related Products

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

Page 17: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Number of sellers

• Increase the number of sellers, and supply rises.

• Decrease the number of sellers, and supply falls.

Page 18: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Technology

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

Page 19: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Regulations, taxes, and subsidies

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

Page 20: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• 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.

Page 21: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Weather

• Clearly weather affects the supply of agricultural products.

• It can also affect transportation as well.

Page 22: Individual Markets: Demand and Supply Chapter 3. Demand and Supply Supply.

Determinants of Supply

• Expectations

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

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


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