1. Supply and equilibrium
Economics 100
Lecture 6
Supply and equilibrium

2. Demand and Supply
Supply
Equilibrium price and quantity

3. Supply
The quantity supplied is the amount of a good or service that producers plan to sell in a given period of time and under given conditions

4. What determines selling plans?
The price of the good
The prices of other goods
Prices of resources (factors of production) used to produce the good
Expected future prices
The number of suppliers
Technology

5. The Law of Supply
Other things being equal, the higher the price of a good, the greater is the quantity supplied of that good
Reason:
increasing opportunity cost

6. Supply Supply is the quantity supplied at each and every price
Supply is illustrated by a
Supply schedule
Supply curve

7. Supply Schedule Price Quantity supplied ($/tape) (mill. tapes/week)b c d e

8. The Supply Curve
Figure shows a supply curve for tapes

9. Supply Curve Two meanings of the supply curve
Quantity sold at a given price
Minimum price willing to accept for last unit sold of a given quantity

10. What makes supply change?
1. The prices of other goods
Substitutes in production
Complements in production
2. Prices of factors of production
3. Expected future prices
4. Number of suppliers
5. Technology

11. Change in Supply Schedule
Price Quantity supplied
($/tape) (mill. tapes/week)
(Old tech) (New tech)
a a'
b b'
c c'
d d'
e e'

12. Change in quantity supplied vs. Change in supply
When the price of a good changes, there is a change in the quantity supplied, which is shown by a movement along the supply curve
When any other influence on selling plans changes, there is a change in supply, which is shown by a shift of the supply curve

13. Change in quantity supplied vs. Change in supply
Should we try to play with excel???
Price is a regulator. It is the signal the market uses to tell whether there is a surplus or a shortage of some good.
The higher the price, the greater is the quantity supplied and the smaller is the quantity demanded
At some price, the quantity supplied equals the quantity demanded
Above that price, there is a surplus (the suppliers would be willing to sell more of the good than the consumers would be willing to buy)
Below that price, there is a shortage (the consumers would be willing to buy more of the good than the suppliers would be willing to sell)

14. Equilibrium Price and Quantity
Price is a regulator
The higher the price, the greater is the quantity supplied and the smaller is the quantity demanded
At some price, the quantity supplied equals the quantity demanded
Above that price, there is a surplus
Below that price, there is a shortage
Price is a regulator. It is the signal the market uses to tell whether there is a surplus or a shortage of some good.
The higher the price, the greater is the quantity supplied and the smaller is the quantity demanded
At some price, the quantity supplied equals the quantity demanded
Above that price, there is a surplus (the suppliers would be willing to sell more of the good than the consumers would be willing to buy)
Below that price, there is a shortage (the consumers would be willing to buy more of the good than the suppliers would be willing to sell)

15. Equilibrium Price and Quantity
Price Quantity Quantity Shortage (-)
demanded supplied Surplus (+)
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16. Equilibrium Price and Quantity
Price Quantity Quantity Shortage (-)
demanded supplied Surplus (+)

17. Equilibrium Price and Quantity
Price Quantity Quantity Shortage (-)
demanded supplied Surplus (+)

18. Equilibrium Price and Quantity
Figure shows surpluses and shortages
It also shows the equilibrium price and quantity

19. Equilibrium Price and Quantity
The demand curve shows the most that buyers are willing to pay
The supply curve shows the least that sellers are willing to accept
Equilibrium is the best deal available for buyers and sellers

20. Next We will be shocking the equilibrium
We will practice altering the supply and demand curves and seeing what happens with the equilibrium price and quantity
Questions?
Read the chapter!