Microeconomics: Supply February 26, 2014

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Core Focus of Lesson Examining supply Law of supply Supply schedule Difference between supply and quantity supplied

What is Supply? The quantities sellers will offer for sale at various prices during a given period of time Suppliers react to prices changes like consumers but in a completely different way: As price increases, they want to supply more

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Sellers are in the business of making a profit: they want to supply more of their product at a higher price because they can make more money When price slips, sellers supply less of their product because their profits will fall.

Law of supply states the quantity supplied will increase if price increases and fall if price falls Demand: Inverse relationship between price and quantity demanded Supply: Positive relationship between price and quantity supplied

Creating A Supply Schedule Examine the relationship between quantity supplied and price by examining the supply schedule for a vendor selling t-shirts: Seller would like to sell in a given time period (quantity supplied) If the price of t-shirts were… 4 8 12 16 20 24 28 32 36

Can you graph the supply curve? What does it illustrate? Shows that suppliers supply less at lower prices and steadily increase the quantity supplied as prices increase.

Your graph should look something like the figure below…

Difference between supply and quantity of supply: “Supply” is the entire set of price and quantity relationships (see supply schedule) while “quantity supplied” refers to one relationship determined by price.

Other Determinants of Supply Input Prices When the price of an input into production (also called a factor of production) like labour costs, raw materials, machinery, energy, etc. increases, producing the good becomes less profitable and firms will offer fewer goods for sale at any price (and vice versa).

Technology Advances in technology which reduce production costs will increase supply. Expectations If a firm expects selling P to increase in the future, it will hold off selling now and current supply will decrease. Number of Firms More firms in the market means more supply.

Review: Supply Quantity supplied, Qs, is the amount of a good that sellers are willing and able to sell. When the price of a good increases, selling that good becomes more profitable and firms will want to offer more for sale. Price and Qs are positively related. As P h, Qs h

The Law of Supply Other things being equal, the quantity supplied of a good rises when the price of the good rises.

The supply curve is a graph of the supply schedule. The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied. The supply curve is a graph of the supply schedule.

With a partner: Find an article that focuses on supply. Write out the reasons why supply is important in the article. Identify the determinants of supply (technology, number of firms, etc.) that make supply increase or decrease. Pair up with another group and share your findings.

Khan Academy’s take on the law of supply found here Useful notes on S&D found here Khan Academy’s take on market equilibrium found here