SUPPLY AS ECON

SUPPLY Quantity supplied of any good is the amount that sellers are willing to sell in the market Determinants of supply: – Price – Input prices – Technology – Expectations – Number of sellers (Market supply curve)

Market Versus Individual Supply Market supply is derived by horizontally summing the individual supply curves Market supply curve shows how the quantity supplied varies as the price of the good varies Any change that varies the quantity supplied at a given price shifts the supply curve Changes in price that varies the quantity supplied in the market is represented as a movement along the supply curve

SUPPLY AND DEMAND How do supply and demand combined together determine the quantity and price of a good sold in the market? Supply and demand curves intersect. At this equilibrium price quantity supplied equals quantity demanded Equilibrium is a situation in which supply equals demand Equilibrium price is also called as the market clearing price as quantity supplied equals quantity demanded

SUPPLY AND DEMAND How do supply and demand combined together determine the quantity and price of a good sold in the market? Supply and demand curves intersect. At this equilibrium price quantity supplied equals quantity demanded Equilibrium is a situation in which supply equals demand Equilibrium price is also called as the market clearing price as quantity supplied equals quantity demanded

LAW OF SUPPLY AND DEMAND Other things remaining same, the price of any good adjusts to bring the supply and demand for that good into balance. Shifts versus movements along curves – Change in quantity supplied and change in quantity demanded is represented as a movement along the fixed supply and demand curves respectively – Change in supply and change in demand is represented as shifts in supply and demand curves respectively

Analyzing Changes in Equilibrium: Application 1.Change in demand- shifts in the demand curve 2.Change in supply- shifts in the supply curve 3.Changes in both supply and demand- Change in equilibrium quantity and price A simple application

Analyzing Changes in Equilibrium: Summary DEMAND/SUPPLY No change in Supply Increase in supply Decrease in supply No change in demand P same Q same P down Q up P up Q down Increase in demand P up Q up P ambiguous Q up P up Q ambiguous Decrease in demand P down Q down P down Q ambiguous P ambiguous Q down

How Prices allocate Resources Prices act as signals that guide the allocation of scarce resources in a market economy Prices in turn are determined by forces of supply and demand