1. SUPPLY, equilibrium, & Price
Microeconomics

2. What is supply?
The amount of production provided over a wide range of prices
The quantity of goods and services that sellers are willing and able to supply.
The Tendency of suppliers to offer greater quantities for sale at higher prices.

3. What is the Law of Supply?
If prices are high, suppliers will offer greater quantities for sale.
If prices are low, suppliers will offer smaller quantities for sale.
There is a DIRECT relationship between supply and price.
A change in overall supply will cause the Supply curve to shift.
A change in quantity supplied will move along the original curve.

4. Supply Schedule and Curves
Slopes upward to the right to reflect the law of supply
“SUPPLY=SKY”
Tells Quantity offered at each and every possible price
Price
Quantity
$30
350 25
330 20
300 15
240

5. CHANGE IN QUANTITY SUPPLIED
Change in Quantity Supplied due to a change in Price
Supply is the whole curve.
Quantity Supplied is one point of production on the curve at a particular Price.
Movement along the same curve.

6. What would cause a change in supply?
Non-Price Determinants:
Government Regulations/Taxes and subsidies
Inputs – cost of inputs – materials used to make (Resources)/ Productivity (weather/natural disasters)
Sellers – number of sellers in the market
Technology
GIST

7. Equilibrium Supply & demand together!
The price at which the quantity supplied is equal to the quantity demanded (market is cleared)

8. equilibrium P = Price Equilibrium or Market Clearing Price
Q = Quantity Equilibrium
EQUILIBRIUM IS WHERE:
S = D

9. Increase In demand Line shifts to the RIGHT D2 is the new demand curve
Due to one of the determinants
New Equilibrium Price increases (P2)
Quantity increases (Q2)

10. Decrease in demand Line shifts to the LEFT D1 is the new demand curve
Due to one of the determinants
New Equilibrium decreases (P1)
Quantity decreases (Q1)

11. Increase in supply Line shifts to the Right S1 is the new supply curve
Due to one of the determinants
New Equilibrium decreases (P1)
Quantity increases (Q1)

12. Decrease in supply Line shifts to the Left S1 is the new supply curve
Due to one of the determinants
New Equilibrium increases (P1)
Quantity decreases (Q1)

13. Price
Sends signals to buyers and sellers about how much they should and would be willing and able to buy and sell.

14. Government involvement
Sometimes the government decides to set prices instead of letting the market decide.
Why might the government decide to step in? (Think of current situations.)
Price Ceiling
Government sets prices BELOW equilibrium
Price Floor
Government sets prices ABOVE equilibrium

15. Price ceiling The highest price that can be charged
Government sets a price below the equilibrium price
Creates a SHORTAGE
Quantity supplied is less than quantity demanded
S < D
To calculate a shortage:
Quantity supplied minus Quantity demanded
Can you think of a current Price Ceiling?

16. Price floor The lowest price that can be charged
Government sets a price above equilibrium price
Creates a SURPLUS
Quantity supplied is greater than quantity demanded
S > D
To calculate a surplus
Quantity supplied minus Quantity demanded
Can you think of a current Price Floor?

17. Condition in the Market
Floors and ceilings
Price
Quantity Demanded
Quantity Supplied
Condition in the Market
$1.00 52 10
42 – unit Shortage
$2.25 35
Equilibrium
$3.00 29 42
13 – unit Surplus