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

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Chapter 3: Demand and Supply

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Presentation transcript:

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.

Law of Supply Ceteris Paribus, there is a direct relationship between price and quantity supplied.

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

Law of Supply So if everything else in the universe is ignored: When prices rise, quantity supplied rises. When prices fall, quantity supplied falls.

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.

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.

Data for Supply Curve Price of LobsterQuantity Supplied

Supply Curve A B C D E

Determinants of Supply Price Input Prices Prices of Related Products Number of Sellers Technology Regulations, taxes, subsidies Weather

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

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.

Determinants of Supply Input Prices If the price of any input declines, then the costs of production decline and supply increases.

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

Determinants of Supply Prices of Related Products As prices shift, producers will change their product line to stay profitable.

Determinants of Supply Number of sellers Increase the number of sellers, and supply rises. Decrease the number of sellers, and supply falls.

Determinants of Supply Technology Over time, technology has lowered the costs of production, resulting in lower prices.

Determinants of Supply Regulations, taxes, and subsidies Federal, state and local government regulations, taxes and subsidies can impact costs.

Determinants of Supply Regulations, taxes, and subsidies Note: studies have shown that in nearly all cases, a company’s decision to move is not affected by local taxes.Note: studies have shown that in nearly all cases, a company’s decision to move is not affected by local taxes.

Determinants of Supply Weather Clearly weather affects the supply of agricultural products. It can also affect transportation as well.

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).