Supply and equilibrium Economics 100 Lecture 6 Supply and equilibrium

Demand and Supply Supply Equilibrium price and quantity

Supply The quantity supplied is the amount of a good or service that producers plan to sell in a given period of time and under given conditions

What determines selling plans? The price of the good The prices of other goods Prices of resources (factors of production) used to produce the good Expected future prices The number of suppliers Technology

The Law of Supply Other things being equal, the higher the price of a good, the greater is the quantity supplied of that good Reason: increasing opportunity cost

Supply Supply is the quantity supplied at each and every price Supply is illustrated by a Supply schedule Supply curve

Supply Schedule Price Quantity supplied ($/tape) (mill. tapes/week) b 2 3 c 3 4 d 4 5 e 5 6

The Supply Curve Figure shows a supply curve for tapes

Supply Curve Two meanings of the supply curve Quantity sold at a given price Minimum price willing to accept for last unit sold of a given quantity

What makes supply change? 1. The prices of other goods Substitutes in production Complements in production 2. Prices of factors of production 3. Expected future prices 4. Number of suppliers 5. Technology

Change in Supply Schedule Price Quantity supplied ($/tape) (mill. tapes/week) (Old tech) (New tech) a 1 0 3 a' b 2 3 6 b' c 3 4 8 c' d 4 5 10 d' e 5 6 12 e'

Change in quantity supplied vs. Change in supply When the price of a good changes, there is a change in the quantity supplied, which is shown by a movement along the supply curve When any other influence on selling plans changes, there is a change in supply, which is shown by a shift of the supply curve

Change in quantity supplied vs. Change in supply Should we try to play with excel??? Price is a regulator. It is the signal the market uses to tell whether there is a surplus or a shortage of some good. The higher the price, the greater is the quantity supplied and the smaller is the quantity demanded At some price, the quantity supplied equals the quantity demanded Above that price, there is a surplus (the suppliers would be willing to sell more of the good than the consumers would be willing to buy) Below that price, there is a shortage (the consumers would be willing to buy more of the good than the suppliers would be willing to sell)

Equilibrium Price and Quantity Price is a regulator The higher the price, the greater is the quantity supplied and the smaller is the quantity demanded At some price, the quantity supplied equals the quantity demanded Above that price, there is a surplus Below that price, there is a shortage Price is a regulator. It is the signal the market uses to tell whether there is a surplus or a shortage of some good. The higher the price, the greater is the quantity supplied and the smaller is the quantity demanded At some price, the quantity supplied equals the quantity demanded Above that price, there is a surplus (the suppliers would be willing to sell more of the good than the consumers would be willing to buy) Below that price, there is a shortage (the consumers would be willing to buy more of the good than the suppliers would be willing to sell)

Equilibrium Price and Quantity Price Quantity Quantity Shortage (-) demanded supplied Surplus (+) 1 9 0 ??? 2 6 3 ??? 3 4 4 ??? 4 3 5 ??? 5 2 6 ???

Equilibrium Price and Quantity Price Quantity Quantity Shortage (-) demanded supplied Surplus (+) 1 9 0 -9 2 6 3 -3 3 4 4 0 4 3 5 +2 5 2 6 +4

Equilibrium Price and Quantity Price Quantity Quantity Shortage (-) demanded supplied Surplus (+) 1 9 0 -9 2 6 3 -3 3 4 4 0 4 3 5 +2 5 2 6 +4

Equilibrium Price and Quantity Figure shows surpluses and shortages It also shows the equilibrium price and quantity

Equilibrium Price and Quantity The demand curve shows the most that buyers are willing to pay The supply curve shows the least that sellers are willing to accept Equilibrium is the best deal available for buyers and sellers

Next We will be shocking the equilibrium We will practice altering the supply and demand curves and seeing what happens with the equilibrium price and quantity Questions? Read the chapter!