Supply and Demand

Supply

Supply The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.

Willingness to produce and sell means that the person wants or desires to produce and sell the good. Ability to produce and sell means that the person is capable of producing and selling the good.

Law of Supply A law stating that as the price of a good increases, the quantity supplied of the good increases, and as the price of a good decreases, the quantity supplied of the good decreases. If P ↑ then Qs ↑ If P↓ then Qs↓ (where P price and Qs quantity supplied)

Direct Relationship A relationship between two factors in which the factors move in the same direction. As one factor rises, the other rises, too.

Quantity Supplied The number of units of a good produced and offered for sale at a specific price.

Supply Schedule A numerical chart illustrating the law of supply.

Supply Curve A graph that shows the amount of a good sellers are willing and able to sell at various prices.

Supply curve shifts

The supply of an item can either go up or down Shift in Supply - The supply curve is a simultaneous set of potential quantities offered at different prices, a positive relationship. A change in a factor other than price causes a supply shift, but the distinction between that and change in quantity supplied is not as fundamental as it seems.

Every time the supply of a good changes, the supply curve for that good “shifts.” By shift we mean that it moves; it moves either to the right or to the left. Change in supply →Shift in supply curve

Supply increases →Supply curve shifts rightward Supply decreases →Supply curve shifts leftward

What Factors Cause Supply Curves to Shift ? What Factors do you think will cause supply to shift? Resource Prices Technology Taxes Subsidies Quotas Number of Sellers Future Price Weather (in some cases)

Resource Prices Land, labor, and capital are used to produce goods and services When resource prices fall, sellers are willing and able to produce and offer to sell more of the good (the supply curve shifts to the right). The reason is that it is cheaper to produce the good. When resource prices rise, in contrast, sellers are willing and able to produce and offer to sell less of the good (the supply curve shifts to the left) The reason is it is more expensive to produce the good.

Technology Technology Advancement in Technology The body of skills and knowledge concerning the use of resources in production. Advancement in Technology The ability to produce more output with a fixed amount of resources. Example: With the use of fertilizers and pesticides, farmers today can produce much more output on an acre of land than they could many years ago.

Per-Unit Cost The average cost of a good. For example, if $400,000 is spent t produce 100 cars, the average, or per-unit, cost is $4,000. Supply curve shifts right

Taxes Some taxes increase the per- unit cost As a result less of the product may be produced (less output) and less profitable for the producer The supply curve shifts left If the tax is eliminated then the supply curve will shift back to its original position.

Subsidies A financial payment made by government for certain actions. These are very common in farming.

Quotas A legal limit on the number of units of a foreign produced good (import) that can enter a country. Decrease supply and shift the supply curve to the left. Usually put in place to protect a country’s industries.

http://capreform.eu/milk-market-on-track-for-soft-landing-following-quota-removal/

Number of Sellers If more sellers begin producing a particular good, perhaps because of high profits, supply increases and the supply curve shifts to the right. If some sellers stop producing a particular good, perhaps because of losses, the supply curve shifts to the left.

Future Price Sellers who expect the price of a good to be higher in the future may hold back the good now and supply the good to the market in the future. Sellers who expect the price of a good to be lower in the future may want to supply the good now instead of later.

Weather (in some cases) Weather can affect the supply of a good in some cases Such as agricultural Bad weather (hurricanes, tornados, etc.) can hurt the supply by limiting the supply Example BP oil refineries Good weather on the other hand can help to increase the supply.

What Factor Causes a Change in Quantity Supplied? Price

Elasticity of Supply The relationship between the percentage change in quantity supplied and the percentage change in price.

Elastic Supply The kind of supply that exists when the percentage change in quantity supplied is greater than the percentage change in price. The price offered will have a huge impact on whether or not the seller will sell. If the price of a ton of corn is $200 and you offer $100, then the seller will not sell you the item at the lower price.

Inelastic Supply The kind of supply that exists when the percentage change in quantity supplied is less than the percentage change in price. Example: The seat on an airplane before the plane is about to leave. In either case it the “producer” wants to sell the product once the plane leaves, there is no longer an opportunity to sell. The “producer” wants to sell no matter whether the price goes up or down