SUPPLY IN THE MARKET

task sheet

1. What is the Supply?

The different quantities of a good (or service) a firm is willing and able to produce and
supply to the market at different price levels.
2. What is the law of supply?
There is a positive causal relationship between the price of goods and the quantity
supplies over time, ceteris paribus (all other things being equal)

QD

3 GOODS IF THE PRICE IS $3

(In this example)

ONE firm WILL sell 1 GOODS

IF THE PRICE IS $1,
2 GOODS IF THE PRICE IS $2

PRICE

Person 1 Person 2

Person 3
TOTAL
(MARKET SUPPLY)

QD

QD

QD

TOTAL QS

10

12

3. Draw four demand curves showing the following events:

(A) An increase in quantity supplied; (B) A decrease in quantity supplied;
(C) An increase in supply (curve move); (D) A decrease in supply. (curve moves)
A. increase in price
increase in QS

Draw here:

B. decrease in price
decrease in QS

C. change in factors
of supply

D. change in factors
of supply

TASK: the factors of supply The curve moves up.

1. Cost of factors of production: - e.g. lower wages

increase supply

2. Technology: - e.g. better factory New machines

increase supply

3. Price of competetive goods: If a farm can make corn or apples and apples are more
profitable apples are more proditable
increase supply apples
4. Price of joint goods: - e.g. butter and milk both come from the cow. If you make more
milk you make more butter increase supply milk
increase supply butter
5. Firms expectations:

Expect strong economy

6. Taxes, indirect and tax on profits:

lower taxes

7. subsidies:

increase supply

Increase subsidies

increase supply

increase supply

The number of firms: ? fewer other firms

increase supply

Shock events: end of a war?

increase supply

war over

DEMAND IN THE MARKET

1. What is the individual demand curve?
The individual demand curve illustrates how much of a good (or service) an individual
consumer is willing and able to buy at different price levels.

QD

ONE PERSON WILL BUY 3

GOODS IF THE PRICE IS $1,
2 GOODS IF THE PRICE IS $2

3 GOODS IF THE PRICE IS $3

(In this example)

2. What is market demand?

The sum of all the individual demand curves. The market demand curve illustrates the
law of demand as price goes up, quantity demended goes down, and visa versa.
PRICE

Person 1 Person 2

Person 3
TOTAL
(MARKET DEMAND)

QD

QD

QD

TOTAL QD

13

10

3. What is the law of demand?

There is a negative causal relationship between the price of goods and the quantity
demanded over time, ceteris paribus (all other things being equal)

3. Draw four demand curves showing the following events:

(A) An increase in quantity demanded; (B) A decrease in quantity demanded;
(C) An increase in demand (curve move); (D) A decrease in demand. (curve moves)

A. decrease price
decrease in QD.

B. increase price
decrease in QD.

C. change in factors
of demand.

D. change in factors
of demand.

Draw here:

TASK: Factors of demand The curve moves up. Describe for each example below:
STUDENTS, discuss with the teacher then give an example for each, the first one is done
already you do the others like this
Income (if normal good) If income increases increase in demand for normal goods!
Income (if inferior good) ..

..

Increase in preference taste

Price of substitutes

Price of complements

Demographic changes

(Demographic changes is about population changes)

EQUILIBRIUM OF DEMAND AND SUPPLYDEMAND IN THE

MARKET, SUPPLY IN THE MARKET
The table below is from the 2 worksheets named:

1. What is the equilibrium of demand and supply?

When what is supplied by firms is the same as what is demanded by consumers, there is
equilibrium of demand and supply.
If the quantity supplied is higher than the quantity demanded there will be too much
supply, called excess supply.
If the quantity demanded is higher than the quantity supplied there will excess demand.

PRICE QD
(P)
-

QS
-

What is equilibrium price?

S<D

13

10

10

S=D

12

S>D

examples

excess If it is winter in astana and

demand everyone wants a jacket, but

Centrale has too few jackets

equilibrium X number people want to buy
of D and S jackets and there are X number
of jackets available for sale
excess supply If it is the end of winter and

there is excess stock of jackets

but nobody wants to buy them

ACTIVITY 1: Put the correct word into the gap below:

Words: Demand; price; 6 units; excess supply; willing and able; firms; Supply;
equilibrium;
So When the _________is $1, demand exceeds supply by 7 units. This is called excess
______________.
When the price is $3, supply is greater than demand by________. This is called ________
__________.
But, there is equilibrium in the market when the price is $2. At this price level, demand
equals supply. There is enough goods for all of the consumers who are _______ _____
__________ to buy the goods at that price level, and all of the units which the ________
are willing and able to sell at that price level will be purchased.
Demand = ________. That is, there is __________ in the market

ACTIVITY 2:

Complete the table below and calculate the equilibrium price and

quantity from the information below

Price

Quantity demanded

53

16

n.a.

45

28

n.a.

40

40

32

51

11

24

61

n.a.

13

14

72

n.a.

Quantity supplied

excess supply

19

excess demand

37

n.a.

Where is the equilibrium point? Price = _____________, Quantity = __________________

ACTIVITY 3:

Causes and effects of changes in demand:

Fill in the blanks:
In the diagram on the left we can see an
increase in demand.
Before this increase in demand the
equilibrium price is _________ and
equilibrium quantity _______________ .
After the increase in demand the NEW
equilibrium price is ________________ and
quantity _______________ .

Fill in the blanks with

income

Demand for normal goods

income

Demand for inferior goods

Preference

Demand

Price of

Demand

Subsitiutes
Price of

Demand

Complements
Population

Demand

ACTIVITY 4:

Causes and effects of changes in supply:

Part 1:
causes of changes in supply Gap fill:
cost of

HELPFUL HINTS

Supply

production
technology

Supply

Price of

Supply

Supply

Supply

taxes

Supply

Subsidies

Supply

Like higher wages

Like better factories

Like if a farmer can

grow corn or wheat,
but the price of wheat
falls, what will happen
to the supply of corn?

E.G. Milk and butter are

made together

Taxes are like a cost of

production

competetive goods

Price of joint

goods
Firms

expectations

Part 2: Fill in the blanks with

- effects of changes in supply

Fill in the blanks:
In the diagram on the left we can see an
decrease in supply
Before this decrease in supply the
equilibrium price is _________ and
equilibrium quantity _______________ .
After the decrease in supply the NEW
equilibrium price is ________________ and
quantity _______________ .

ACTIVITY 5: ANSWER THE FOLLOWING BASED ON THE HANDOUT

LINEAR SUPPLY FUNCTION & LINEAR DEMAND FUNCTION
QUESTION 1:
Solve the equation:
We know that if demand equals supply there will be a price level where all of the goods
are sold: Quantity Demanded (QD) = Quantity Supplied (QS).
There will be no excess demand and no excess supply.
Qs = -100 + 70p

Qd = 400 30p

400 -30p = 70p 100

EQUILIBRIUM P =

EQUILIBRIUM Q =

QUESTION 2:
If the price of pizzas is $4 what will be the supply of pizzas?
QUESTION 3:
If the price of pizzas is $4 what will be the excess demand for pizzas?
QUESTION 4:
If the price of pizzas is $4 will the pizza shop increase the price? Why?
QUESTION 5:
If the shop increases the price to $5 will the shop make more profit?
QUESTION 6:
If the price increases to $5 will thr shop still sell all of their pizzas and make more profit?
Question 7:
If the shop increases the price to $5 will there be excess demand or excess supply?
QUESTION 8:
If the price of pizzas is $4 what will be the demand for pizzas?

The cobweb model is based on a time lag between supply and demand decisions.
Agricultural markets are a context where the cobweb model might apply, since
there is a lag between planting and harvesting (Kaldor, 1934, p. 133-134 gives two
agricultural examples: rubber and corn). Suppose for example that as a result of
unexpectedly bad weather, farmers go to market with an unusually small crop of
strawberries. This shortage, equivalent to a leftward shift in the market's supply
curve, results in high prices. If farmers expect these high price conditions to
continue, then in the following year, they will raise their production of strawberries
relative to other crops. Therefore when they go to market the supply will be high,
resulting in low prices. If they then expect low prices to continue, they will decrease
their production of strawberries for the next year, resulting in high prices again.
This process is illustrated by the diagrams on the right. The equilibrium price is at
the intersection of the supply and demand curves. A poor harvest in period 1
means supply falls to Q1, so that prices rise to P1. If producers plan their period 2
production under the expectation that this high price will continue, then the period 2
supply will be higher, at Q2. Prices therefore fall to P2 when they try to sell all their
output. As this process repeats itself, oscillating between periods of low supply with
high prices and then high supply with low prices, the price and quantity trace out a
spiral. They may spiral inwards, as in the top figure, in which case the economy
converges to the equilibrium where supply and demand cross; or they may spiral
outwards, with the fluctuations increasing in magnitude.

Year 1 under supply, Q1.

Year 2 Increase supply to Q2 but too much supply.
Year 3 reduce supply to Q3 but too little supply.
The farmer is changing the supply based on the previous years prices and ..
Does not know the equilibrium price and quantity.