1. Supply 1

2. Outline I. Law of Supply II. Supply Schedules and Supply Curves
A. Supply Schedules
B. Supply Curves
C. Market Supply 2

3. Outline (Cont.) III. Change in Supply vs. Change in Quantity Supplied
A. Change in Supply
B. Change in Quantity Supplied 3

4. What is Supply?
Supply is how much a firm is willing to sell at every given price, ceteris paribus
Thus, if all else remains the same and the price of a good goes up, what would you expect the response of a firm to be?
To produce more, since prices are going up, so will profits

5. Law of Supply
Law of Supply - the price of a product (or service) is directly related to the quantity supplied, ceteris paribus.
Quantity Supplied - the amount of a good (or service) produced by firms at a particular price.
While demand typically refers to consumers, supply typically refers to firms. 5

6. Supply Schedules and Curves
Just like we were able to construct a Demand Schedule and Demand Curve, we will do the same for Supply
Supply Schedule - a table showing the relationship between the price of a good and the quantity supplied per period of time, ceteris paribus. 6

7. Supply Schedule 7

8. Supply Schedule 8

9. Supply Schedule 9

10. Supply Schedule 10

11. Supply Schedules and Curves
Supply Curve - a diagram showing the relationship between the price of a good and the quantity supplied per period of time, ceteris paribus. 11

12. Supply Curve 12

13. Supply Curve
P($)
Remember to ALWAYS label
your axes!
Qs per month 13

14. Supply Curve
P($) 20 15 10 5
Qs per month 5 10 15 14

15. Supply Curve
P($) A 20 15 10 5
Qs per month 5 10 15 15

16. Supply Curve
P($) A 20 B 15 10 5
Qs per month 5 10 15 16

17. Supply Curve
P($) A 20 B 15 10 C 5
Qs per month 5 10 15 17

18. Supply Curve
P($) S A 20 B 15 10 C 5
Qs per month 5 10 15 18

19. Market Supply Curve
Market Supply Curve - a curve showing the relationship between the price of a good and the total quantity supplied by all firms in the market per period of time, ceteris paribus.
Market supply curves are obtained by summing the supply curves of individual firms. 19

20. Market Supply Schedule
Market Supply Schedule - a table showing the relationship between the price of a good and the total quantity supplied by all firms in the market per period of time, ceteris paribus.
Market supply schedules are obtained by summing the supply curves of individual firms. 20

21. Market Supply Schedule21

22. Change in S vs. Change in Qs
Change in Supply - a shift of the supply curve
Changes in Supply
Increase in supply - supply curve shifts to the right
Decrease in supply - supply curve shifts to the left 22

23. Change in Supply Factors Which Cause a Change in Supply
Prices of Relevant Resources
Technology
Number of Sellers
Expectations of Future Price
Taxes and Subsidies
Changes in the Availability of Credit 24

24. Price of Relevant Resources
Let’s say the cost of plastic (used in making CDs) decreases
It is now cheaper to make every quantity of CDs 25

25. Resource Price Decrease
So, before the cost decrease, at a price of $20 the firm was willing to make 15 CDs. If costs go down, will the firm still need $20 to make them want to supply 15 CDs?
No, in order to make the same profit they are willing to take a lower price

26. Supply Curve
P($) A 20 15 A’ 10 5
Qs per month 5 10 15 27

27. Resource Price Decrease
Thus the firm is willing to supply every quantity at a lower price.
Or in other words, at every price the firm is willing to supply more of the good
In summary, if the price of a resource goes down, supply increases (shifts to the right)

28. Supply Curve Shift Old Supply Curve P($) A 20 15 A’ New Supply Curve10 5
Qs per month 5 10 15 29

29. Price of Relevant Resources
Let’s say the cost of plastic (used in making CDs) increases
It is now more expensive to make every quantity of CDs 30

30. Resource Price Decrease
So, before the cost increase, at a price of $15 the firm was willing to make 7 CDs. If costs go up, will the firm still need $15 to make them want to supply 7 CDs?
No, in order to make the same profit they are going to need a higher price to cover the higher costs

31. Supply Curve
P($) B’ 20 B 15 10 5
Qs per month 5 10 15 32

32. Resource Price Decrease
Thus the firm is willing to supply every quantity at a higher price.
Or in other words, at every price the firm is willing to supply less of the good
In summary, if the price of a resource goes up, supply decreases (shifts to the left)

33. Supply Curve Shift New Supply Curve P($) Old Supply Curve B’ 20 B 1510 5
Qs per month 5 10 15 34

34. Technology Improvement in technology lowers costs
Lower cost of production increases Supply
Worsening of technology increases costs
Higher cost of production decreases Supply 35

35. Number of Sellers
More sellers in the market means more quantity is being supplied at every price
Increase in supply of the good
Less sellers in the market means less quantity is being supplied at every price
Decrease supply of the good 36

36. Expectations of Future Prices
Firms expect price of their good to decrease in the future
Supply increases today
Firm would prefer to sell today when price is higher 37

37. Expectations of Future Prices
Firms expect price of their good to increase in the future
Supply decreases today
Firm would prefer to wait until the good can be sold for a higher price 38

38. Taxes and Subsidies Increase in tax on the good decreases supply
Raises the cost of production
Decrease in tax on the good increases supply
Lowers the cost of production 39

39. Taxes and Subsidies
A subsidy is an amount the paid to the producer for each unit of a good produced
Increase in Subsidy on the Good Increases Supply
Lowers the costs of production
Decrease in Subsidy on the Good Decreases Supply
Raises the costs of production 40

40. Availability of Credit
If it is easier for the firm to borrow money, the firm will be able to produce more
Thus Supply increases
If it is more difficult for the firm to borrow money, the firm will have to produce less
Thus Supply decreases

41. Change in Quantity Supplied
Change in Quantity Supplied (DQs) - movement along a supply curve
A change in quantity supplied can only be caused by a change in the price of the good.
Changes in Quantity Supplied
Increase in Qs - a movement to the right along a supply curve
Decrease in Qs - a movement to the left along a supply curve 42

42. Increase in Supply 43

43. Increase in Supply P Qs 44

44. Increase in Supply P S Qs 45

45. Increase in Supply P S Qs 46

46. Increase in Supply P S S’ Qs 47

47. Increase in Qs 48

48. Increase in Qs
P($)
Qs per month 49

49. Increase in Qs S
P($)
Qs per month 50

50. Increase in Qs S
P($) A
Qs per month 51

51. Increase in Qs S
P($) A
Qs per month 52

52. Increase in Qs S
P($) B A
Qs per month 53