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1 Supply Supply refers to the seller side of the market. In this section, let’s explore the basic topics about supply. Note: don’t worry about the demand.

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Presentation on theme: "1 Supply Supply refers to the seller side of the market. In this section, let’s explore the basic topics about supply. Note: don’t worry about the demand."— Presentation transcript:

1 1 Supply Supply refers to the seller side of the market. In this section, let’s explore the basic topics about supply. Note: don’t worry about the demand side of the market here.

2 2 Supply Supply, in general, refers to how much of a product sellers want to make available during a particular time period. This amount is influenced by 1) the price of the product, 2) the level of costs of inputs to production, 3) the level of technology in production, 4) the number of sellers in the market, and

3 3 Law of supply The law of supply is the statement that the price and the quantity supplied are directly related. The price of the product is a major influence on how much producers will make available for sale. P S Q P2 P1 Q1 Q2 The law of supply is reflected in the upward slope of the supply curve. The movement from Q1 to Q2 in this graph is due to the price change and is called a change in the quantity supplied.

4 4 Change in supply If items 2 thru 5 in our list should change (often called a change in a determinant of supply) the supply curve will shift and we say there has been a change in supply. Note a decrease in supply is a leftward movement of the supply curve. The amount supplied is measured horizontally, i.e., rightward and leftward. P Q S2 S1 S2 represents a lower Supply compared to S1.

5 5 Supply curve shift u If a determinant is directly related to supply, an increase(decreases) in the determinant results in a supply increase(decreases) and the curve shifts to the right(left). u If a determinant is inversely related to supply, an increase(decrease) in the determinant results in a supply decrease(increases) and the curve shifts to the left(right).

6 6 Impact of resource(also called an input) price change u Resources prices and supply are inversely related. u As resources prices rise, then at the current price of output some sellers have to produce less because they can’t survive the higher resource price (the higher price of resources hits profit and firms reduce output.)

7 7 Impact of technology u Level of technology and supply are positively related. u As technology advances, more can be produced from a given set of resources.

8 8 Impact of Number of sellers. u The number of sellers and supply are positively related.


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