BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Chapter 4 SUPPLY ANALYSIS 2 nd Sem, S.Y

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen The analysis of the supply of produced goods has two parts: –An analysis of the supply of the factors of production to households and firms. –An analysis of why firms transform those factors of production into usable goods and services. Supply Analysis

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Supply  Supply is the willingness and ability of producers to offer or sell good and services for sale.  Supply for a product is the amount of the good or service that producers in a market are willing and able to sell at a certain price, ceteris paribus (others variables held constant).

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen The Law of Supply Law of supply – direct relationship between price and quantity supplied. It states that producers are willing to sell more of a good or service at a higher price than they are at a lower price

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Law of Supply –As the price of a product rises, producers will be willing to supply more. –The height of the supply curve at any quantity shows the minimum price necessary to induce producers to supply that next unit to market. –The height of the supply curve at any quantity also shows the opportunity cost of producing the next unit of the good. The Law of Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Economic Models in Supply Analysis  Supply Schedule  Supply Curve  Supply Function

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Supply Schedule Supply schedule  a table that shows the relationship between the price of a good and the quantity supplied.  This reflects the various quantities of the product that will be sold at various prices at a specific time and place. It can be an individual or a market supply schedule.  Market supply schedule is the sum of all the individual supply for a particular good

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Individual Supply vs. Market Supply  Market supply refers to the sum of all individual supply for a particular good or service.  Graphically, individual supply curves are summed horizontally to obtain the market demand curve.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Price per kilo ABCDEABCDE A. Individual Supply Schedule for Tomatoes in Pangasinan Tomatoes supplied per month A Sample Supply Schedule Price per kilo ABCDEABCDE B. Market Supply Schedule for Tomatoes in Pangasinan Tomatoes supplied per month ,000 8,000 6,000 4,000 2,000

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Supply Curve  The supply curve is the graphical representation of the law of supply.  The supply curve slopes upward.  The slope tells us that the quantity supplied varies directly – in the same direction – with the price.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Price (per unit) 0 Quantity supplied (per unit of time) PAPA QAQA A A Sample Supply Curve Supply Curve

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Price per kilo (In pesos) B. Supply Curve Quantity of Tomatoes supplied (per month) A B C D From a Supply Schedule to a Supply Curve Supply of Tomatoes Price per kilo ABCDEABCDE A. Supply Schedule for Tomatoes in Pangasinan Tomatoes supplied per week E

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Let’s Check Your Understanding  Suppose that you want to analyze the market supply of cabbage in Baguio City. You survey all the farms that produce and sell cabbage and determine how many kilos they are willing to sell at various prices. If your survey enables you to make a market supply schedule, create a hypothetical supply schedule for cabbage. Use this market supply schedule to draw a market supply curve and derive a supply equation.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Supply Function Price per kilo ABCDEABCDE A. Supply Schedule for Tomatoes in Pangasinan Tomatoes supplied per week

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Let’s Check Your Understanding! Price (P) Quantity Supplied , , , From the following table of prices of branded jeans and quantity supplied (in thousands of jeans), draw the supply curve for branded jeans. Describe the curve.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Let’s Check Your Understanding!

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen  Supply refers to a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant.  Quantity supplied refers to a specific amount that will be supplied at a specific price. Supply versus Quantity Supplied

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Change in quantity supplied  caused by a change in the price of a good.  the movement of points within the same supply curve. Change in supply  the changes in the quantity supplied brought about by any of the non-price determinants of supply (input cost, technology, taxes and subsidies, etc.) and not by price (which is constant). Change in Quantity Supplied vs. Change in Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen A movement along a supply curve is the graphical representation of the effect of a change in price on the quantity supplied. Movements Along a Supply Curve vs.Shifts in Supply A shift in supply is the graphical representation of the effect of anything (factors affecting supply) other than price on supply.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Change in Quantity Supplied S1S1 Change in quantity supplied (a movement along the curve) B 0 Price (per unit) Quantity supplied A

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen S1S1 D1D1 Shift in Supply Price (per unit) Quantity Supplied S2S2 S0S0 Increase in Supply Decrease in Supply

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Let’s Check Your Understanding! Determine whether the following will have effect on the change in the quantity supplied or change in supply. Show the effect through a graph. 1.The price of notebook computers sharply falls so many manufacturers produce less. 2. New technologies have made it possible to build large cruise ships, Econ cruise lines offer more cabins, at lower prices, than before. 3. Econ Phone develops an effective wireless technology thus, it increases the supply of cell phones 4.An increase in the number of Internet service providers increases the supply of such services. 5. Coco lumber firms expect that there will be a substantial rise in future prices of coco lumbers, thus the firms decrease their supply of coco lumbers today.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Determinants of Supply Taxes and Subsidies Taxes and Subsidies Input Costs Input Costs Number of Producers Number of Producers Producer Expectations Producer Expectations Technology and Labor Productivity Technology and Labor Productivity Weather Prices of Substitutes and Complements Prices of Substitutes and Complements

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Non-price Determinants of Supply Supply Shifters are factors that cause shifts in the supply curve: –Input Costs or Resource Prices –The prices of related good –Technology and Labor Productivity –Number of Sellers –Future Price Expectation –Taxes and Subsidies – Weather

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Input Costs  Input costs are the price of the resources needed to produce a good or service  When costs go up, profits go down, so that the incentive to supply also goes down.  Supply will increase when the cost of inputs falls, and vice versa.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Increase in Supply Decrease in Supply Input Costs – Shift in the Supply Curve

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Prices of Related Goods  Substitutes – are often pairs of goods that are used in place of each other in production process.  Complements - are pairs of goods that are used together in production of a good or service.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Increase in Supply Decrease in Supply PRR (Substitutes) – Shift in the Supply Curve

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Increase in Demand Decrease in Demand PRR (Complements) – Shift in the Supply Curve

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Technology  Involves the application of scientific methods and discoveries to the production process, resulting in new products or new manufacturing techniques.  Improvements in technology enable producers to spend less on inputs yet still produce the same output. When a better technology becomes available, reducing the cost of production, supply increases, and the supply curve shifts to the right.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Labor Productivity  It is the amount of goods and services that a person can produce in a given time.  Increasing productivity decreases the costs of production and therefore increases supply.  Better-trained and more-skilled workers can usually produce more goods in less time, and therefore at lower costs, than less-educated or less-skilled workers

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Increase in Demand Decrease in Demand Technology– Shift in the Supply Curve

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Producer Expectation  If producers expect the price of their product to rise or fall in the future, it may affect how much of that product they are willing and able to supply in the present.  For example, if a farmer expects the price of corn to be higher in the future, he may store some of the current crop, thereby decreasing supply.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Increase in Supply Decrease in Supply Producer Expectation – Shift in the SC

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Number of Producers  An increase in the number of producers means increased competition, which may eventually drive less-efficient producers out of the market, decreasing supply.  When one company develops a successful new idea, whether it’s the latest generation of cell phones, or fast-food meal, other producers soon enter the market and increase the supply of the good or service. When this happens, the supply curve shifts to the right.

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Increase in Supply Decrease in Supply Number of Sellers – Shift in the Supply Curve

BACHELOR OF ARTS IN ECONOMICS Econ 111 – Economic Analysis Pangasinan State University Social Science Department – PSU Lingayen Taxes and Subsidies  An excise tax is a tax on the production or sale of a specific good or service. Excise taxes are often placed on items such as alcohol and tobacco— things whose consumption the government is interested in discouraging.  Taxes like excise tax increase producers’ costs and, therefore, decrease the supply of goods.  Taxes tend to decrease supply; subsidies have the opposite effect. A subsidy is a government payment that partially covers the cost of an economic activity. The subsidy’s purpose is to encourage or protect that activity.