1. D & S (part 2)

2. What Is Supply?
Supply:
is a relationship between a product’s price and quantity supplied
is shown using a schedule or curve
The law of supply states there is a direct relationship between price and quantity supplied. 6

3. The Supply Curve Figure 2.5, page 35
Market Supply Curve for Strawberries
Market Supply Schedule
for Strawberries f S
0.50
1.00
1.50
2.00
2.50 e
Price
($ per kg)
Quantity Supplied
(millions of kg)
Points
on graph d
$1.50 5 d
Price ($ per kg)
2.00 9 e
2.50 13 f 1 3 5 7 9 11 13
Quantity Supplied
(millions of kg per year) 3

4. Changes in Supply (a) Changes in supply:
are shown by shifts in the supply curve
are caused by changes in supply determinants
This is when price remains unchanged, the supply for the item changes
Supply changes due to other factors besides price of that item
This is when producers supply more at each possible price 7

5. Changes in Supply Market Supply Curve for Strawberries
Market Supply Schedule
for Strawberries
0.50
1.00
1.50
2.00
2.50
Price
($ per kg)
Quantity Supplied
(millions of kg)
(S2)
(S0)
(S1)
Price ($ per kg)
$2.50 11 13 15
2.00 7 9 11
1.50 3 5 7 1 3 5 7 9 11 13 15
Quantity Supplied
(millions of kg per year) 3

6. Supply Determinants (a)
Number of Producers/Sellers
Resource Prices
Change in Technology
Prices of Related Products
Changes in Nature
Producer Expectation

7. Supply Determinants (a)
Number of producers (an increase causes a rightward supply shift)
An increase number of Internet providers increases the supply of such service
Resource prices (an increase causes a leftward supply shift)
An increase in the prices of iron ore will increase the cost of producing steel and reduce its supply
A decrease in prices of seed and fertilizers will increase the supply of corn 9

8. Supply Determinants (a)
Resource prices (an increase causes a leftward supply shift)
An increase in the prices of iron ore will increase the cost of producing steel and reduce its supply
A decrease in prices of seed and fertilizers will increase the supply of corn 9

9. Supply Determinants
State of technology (an improvement causes a rightward supply shift) (aka technological improvements)
The development of fuel efficient engines reduced the cost of providing air service; the supply of # of flights increases

10. Supply Determinants Prices of related products
If tablets are more profitable, producers will switch from producing desktop computers to tablets
Higher profits from soccer balls entice producers to increase its supply and decrease the supply of volleyballs

11. Supply Determinants
Changes in nature (an improvement causes a rightward shift for some products)
A fire destroys forests, decreasing the supply of lumber

12. Supply Determinants
Producer expectations (an expectation of lower prices in the future causes an immediate rightward supply shift)
Producers expect the computer prices (selling price) to decrease next year, causing them to supply more of this item now

13. Changes in Quantity Supplied (a)
are shown by movements along the supply curve
are caused by price changes

14. Changes in Quantity Supplied1 2
Quantity Supplied
(millions of kg per year)
Change in Quantity Supplied
Price ($ per kg) 20 40 60 80
100
120
Change in Supply 1 2
Quantity Supplied
(millions of kg per year)
Price ($ per kg) 20 40 60 80
100
120 S0 S0 S1 b a 3

15. Change in Quantity Supplied
Change in Supply
Change in Quantity Supplied
Movement from one point to another - from one price-quantity combination to another -on a fixed supply curve
Change in the entire schedule or the entire curve
A change in the quantity supplied of a good or service at every price

16. Do worksheet for hwk