1. SupplySupply

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

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

4. What is Supply?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 SupplyLaw 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.

6. Supply Schedules and CurvesSupply 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.

7. Supply ScheduleSupply Schedule
Price of CDs ($) Quantity of CDs
Supplied per month

8. Supply ScheduleSupply Schedule
P ($) Qs per month
$20 15

9. Supply ScheduleSupply Schedule
P ($) Qs per month
$20 15
$15 7

10. Supply ScheduleSupply Schedule
P ($) Qs per month
$20 15
$15 7
$10 5

11. Supply Schedules and CurvesSupply 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.

12. Supply CurveSupply Curve

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

14. Supply CurveSupply Curve
P($)
Qs per month
5
10
15
20
0 5 10 15

15. Supply CurveSupply Curve
P($)
Qs per month
5
10
15
20
0 5 10 15
A

16. Supply CurveSupply Curve
P($)
Qs per month
5
10
15
20
0 5 10 15
A
B

17. Supply CurveSupply Curve
P($)
Qs per month
5
10
15
20
0 5 10 15
A
B
C

18. Supply CurveSupply Curve
Qs per month
5
10
15
20
0 5 10 15
A
B
C
P($)
S

19. Market Supply CurveMarket 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.

20. Market Supply ScheduleMarket 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.

21. Market Supply ScheduleMarket Supply Schedule
P($) Firm A
Qs
Firm B
Qs
Firm C
Qs
Market
Qs
5 1 3 4 8
10 2 8 5 15
15 3 12 7 22

22. Change in S vs. Change in QChange in S vs. Change in Qss
• Change in Supply - a shift of the supply
curve
• A supply curve is drawn under the
assumption of ceteris paribus.
• When this assumption is relaxed, the entire
supply curves shifts

23. Change in S vs. Change in QChange in S vs. Change in Qss
• Changes in Supply
• Increase in supply - supply curve shifts to the
right
• Decrease in supply - supply curve shifts to the
left

24. Change in SupplyChange 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

25. Price of Relevant ResourcesPrice 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

26. Resource Price DecreaseResource 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

27. Supply CurveSupply Curve
P($)
Qs per month
5
10
15
20
0 5 10 15
A
A’

28. Resource Price DecreaseResource 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)

29. Supply Curve ShiftSupply Curve Shift
P($)
Qs per month
5
10
15
20
0 5 10 15
A
A’
Old Supply Curve
New Supply Curve

30. Price of Relevant ResourcesPrice 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

31. Resource Price DecreaseResource 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

32. Supply CurveSupply Curve
P($)
Qs per month
5
10
15
20
0 5 10 15
B
B’

33. Resource Price DecreaseResource 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)

34. Supply Curve ShiftSupply Curve Shift
P($)
Qs per month
5
10
15
20
0 5 10 15
B
B’ Old Supply Curve
New Supply Curve

35. TechnologyTechnology
• Improvement in technology lowers costs
• Lower cost of production increases Supply
• Worsening of technology increases costs
• Higher cos of production decreases Supply

36. Number of SellersNumber 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

37. Expectations of Future PricesExpectations 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

38. Expectations of Future PricesExpectations 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

39. Taxes and SubsidiesTaxes 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

40. Taxes and SubsidiesTaxes 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

41. Availability of CreditAvailability 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

42. Change in Quantity SuppliedChange in Quantity Supplied
• Change in Quantity Supplied (∆Qs) -
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

43. Increase in SupplyIncrease in Supply

44. Increase in SupplyIncrease in Supply
P
Qs

45. Increase in SupplyIncrease in Supply
P
Qs
S

46. Increase in SupplyIncrease in Supply
P
Qs
S

47. Increase in SupplyIncrease in Supply
P
Qs
S
S’

48. Increase in QIncrease in Qss

49. Increase in QIncrease in Qss
P($)
Qs per month

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

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

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

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