SUPPLY

Supply relates the quantity of

a good that will be offered for sale at each of various possible prices, over some period of time, ceteris paribus.
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Data Point H I J K L M

Price ($) 5 4 3 2 1 0

Quantity Supplied 4 3 2 1 0 0

2004 Prentice Hall Publishing

Ayers/Collinge, 1/e

Supply Curve
Price ($s) 5 4 I J K L M 1 2 3 4 5 Quantity
Ayers/Collinge, 1/e 3

Supply
The supply curve slopes upward because price and quantity supplied are directly related.

3
2 1 0

2004 Prentice Hall Publishing

Supply Shift Factors

Prices of Inputs Technological Change Government or Union Restrictions Prices of Substitutes in Production Prices of Jointly Produced Goods Expected Future Prices Number of Sellers

2004 Prentice Hall Publishing

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Changes in Supply vs. Changes in Quantity Supplied

Price ($s)

Supply
5 4 A price change causes movement from one point to another along the same supply curve. 1 2 3 4 5 Quantity
Ayers/Collinge, 1/e 5

3
2 1 0

2004 Prentice Hall Publishing

Changes in Supply vs. Changes in Quantity Supplied

Price ($s)

Supply
5 4 Decrease Movement along Supply

3
2 1 0 1

Increase

Quantity
Ayers/Collinge, 1/e 6

2004 Prentice Hall Publishing

Changes in Supply - Decrease

Supply Shifts LEFT When:
Sellers expect price to rise
$ S2

in future. Price of labor or any input rises. Government or union restrictions increase cost. Price of substitute in production rises. Price of product produced jointly falls. Number of sellers declines

S1

Quantity

2004 Prentice Hall Publishing

Ayers/Collinge, 1/e

Changes in Supply - Increase

$ S1 S2

Quantity

Supply Shifts RIGHT When: Sellers expect price to decline in future. Price of labor or any input falls. Technological change lowers cost. Price of substitute in production falls. Price of product produced jointly rises. Number of sellers increases
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2004 Prentice Hall Publishing

Individual Demand to Market Demand

Price ($) 5 4 3 2 1 0 Jack's Quantity Demanded Jill's Quantity Demanded Market Q Demanded 1 0 1 2 1 3 3 2 5 4 3 7 5 4 9 6 5 11

Demand can be one individuals or the market as a whole

2004 Prentice Hall Publishing Ayers/Collinge, 1/e 9

Market Demand Curve

Price ($) 5 4 3 2 1 0 Jills Quantity Jacks Quantity Demanded Demanded 0 1 1 2 2 3 3 4 4 5 5 6 Market Q Demanded 1 3 5 7 9 11

6
5 4

3
2
Jills Demand Jacks Demand Market Demand

1
0 1

10 11 Quantity
10

2004 Prentice Hall Publishing

Ayers/Collinge, 1/e

Individual Supply to Market Supply

Price ($) 5 4 3 2 1 0 Wally's Quantity Supplied Wanda's Quantity Supplied Market Q Supplied 4 5 9 3 4 7 2 3 5 1 2 3 0 1 1 0 0 0

Supply can be from one firm or all firms in the market.

2004 Prentice Hall Publishing Ayers/Collinge, 1/e 11

Market Supply Curve

Wallys Supply Wandas Supply

5 4

3
2

Market Supply

1
0 1 2 3 4 5 6 7 8 9 Quantity
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2004 Prentice Hall Publishing

Price ($) 5 4 3 2 1 0

Quantity Demanded 1 3 5 7 9 11

Quantity Supplied 9 7 5 3 1 0

Surplus or Shortage 8 4 0 -4 -8 -11

There is only one price that clears the market, meaning that the quantity supplied equals the quantity demanded.
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2004 Prentice Hall Publishing

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Market equilibrium occurs where demand and supply intersect. 5

Too High 4 Surplus of 4 Pails
Supply

P* 3
Too Low 2 Shortage of 4 Pails

1
0 1 2 3 4

Demand

Q*

8 9 Pails of Water
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2004 Prentice Hall Publishing

The market clearing price and the resulting quantity traded comprise what is referred to as the market equilibrium, meaning that there is no tendency for either price or quantity to change, ceteris paribus.

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Changes in Market Equilibrium

Price ($s)

Snew Snew
Price ($s)

P*
P*

D
Q*

D
Q*

Quantity An increase or decrease in supply.

Quantity

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Changes in Market Equilibrium

Price ($s)

Price ($s)

P*

P*

D
Q*

Dnew
Q*

Dnew
Quantity
17

Quantity

An increase or decrease in demand.

2004 Prentice Hall Publishing Ayers/Collinge, 1/e

Case 1 2 3 4

Demand No change No change Right Left

Supply Right Left No change No change

Equilibrium P Fall Rise Rise Fall

Equilibrium Q Rise Fall Rise Fall

Note: In Cases 1-4 only one of the two curves is shifting.

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Case 5 6 7 8

Demand Right Left Right Left

Supply Right Left Left Right

Equilibrium P Unknown Unknown Rise Fall

Equilibrium Q Rise Fall Unknown Unknown

Note: In Cases 5-8 both of the curves

are shifting.

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