Markets and Supply Overheads

Competitive agents A buyer or seller (agent) is said to be competitive if the agent assumes or believes that the market price is given and that the agent's actions do not influence the market price. price taker We call such an agent a price taker.

Supply for a competitive agent The total amount of a good that a competitive agent would choose to produce and sell at a given price is called the quantity supplied by that agent. The market supply of a good is the total amount that all sellers in a market would choose to produce and sell at a given price.

The Supply Function The supply function for a good is a rule that specifies the quantity of the good that will be produced and sold at a given price other factors holding all other factors that affect constant the quantity supplied of the good constant.

The Supply Function Z S = (z 1, z 2, z 3,..., z v ) S = quantity supplied P = price of the good Z S = other factors that affect supply

The Law of Supply The law of supply states that when the price of a good rises, and everything else remains the same, the quantity of the good supplied will rise.

The Supply Schedule The supply schedule is a list showing quantities the quantities of a good that firms will choose produce and sell at different prices to produce and sell at different prices, with all other variables held constant

Price (per lb) Quantity supplied Supply of Hamburger

The Supply Curve The supply curve is a graphical depiction supply schedule of a supply schedule; a line showing the quantity of a good or service supplied at various prices, other variables held constant with all other variables held constant.

The Law of Supply supply The law of supply says that the positive slope supply curve has a positive slope (slopes upward)

Other factors in the supply function Prices of inputs used to produce the good Prices of alternative goods the firm could produce The technology used in production Expectations about the future price of the good Productive capacity of the industry

S = g (P, input prices, other output prices, Supply depends on many things technology, capacity, expectations )

Changes in Supply A change in supply is a change entire relationship in the entire relationship between price and quantity supplied. increase in supply An increase in supply means that sellers would choose produce and sell more to produce and sell more at any price. decrease in supply A decrease in supply means that they would choose supply less to supply less at any price.

Example change in supply Price (per lb) Quantity Supplied New Quantity Supplied Prices of cattle rise

Changes in supply are represented by a shift in the supply curve. Supply of Hamburger Patties Quantity Price S0 S1 After Rise in Cattle Prices 6,

Changes in supply are represented by a shift in the supply curve. When supply increases, the supply curve shifts to the right; when supply decreases, the supply curve shifts to the left.

Changes in supply are represented by a shift in the supply curve. Supply of Hamburger Patties Quantity PriceS0 S2 - Decrease S1 - Increase

Changes in supply as compared to changes in the quantity supplied in contrast to a change in supply that shifts the whole curve. Along a fixed supply curve, as price changes the quantity supplied will change. This is called a change in the quantity supplied

Change in supply Changes in supply and changes in the quantity supplied Quantity Price S0 Supply of Hamburger Patties  in quantity supplied Change in supply Original Supply Change in supply

Prices of inputs used to produce the good Prices of alternative goods the firm could produce The technology used in production Expectations about the future price of the good Productive capacity of the industry Factors causing changes in supply

Effect of input prices on supply A rise in the price of an input causes a decrease in supply, shifting the supply curve to the left.

A rise in the price of an alternative product will decrease the supply of the good, shifting the supply curve to the left. Effect of other output prices on supply An alternative good is another good that the firm could produce using some of the same type of inputs as the good in question.

Effect of productive capacity on supply An increase in the number of firms in an industry will increase supply, shifting the supply curve to the right. An increase in the size of each firm in an industry will increase supply, shifting the supply curve to the right.

Technological advance will increase the supply of the good, shifting the supply curve to the right. Effect of technology on supply

Expectations and Supply If firms anticipate the price of a product will rise in the near future, they may choose to sell less of the product now, thus decreasing the supply. If firms anticipate the price of a product will fall in the near future, they may choose to supply more of the product now.

The End