(Supply)

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 Supply
• Behaviour of sellers
Price
• Relationship between 4
– Quantity supplied of a good
3
– Price
– Holding other factors constant 2

0 20 40 60
Quantity

• The relationship that exists between the price of a good

and the quantity supplied in a given time period, ceteris
paribus.

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 Supply in Output Markets

• A supply schedule is a table

JORDAN 'S SUPPLY showing how much of a product
SCHEDULE FOR firms will supply at different prices.
SOYBEANS
QUANTITY
PRICE SUPPLIED • Quantity supplied represents the
(PER (THOUSANDS number of units of a product that a
BUSHEL) OF BUSHELS firm would be willing and able to offer
PER YEAR) for sale at a particular price during a
$ 2 0
given time period.
1.75 10
2.25 20
3.00 30
4.00 45
5.00 45

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The Supply Curve and the Supply Schedule
• A supply curve is a graph illustrating how much of a product a
firm will supply at different prices.

Price of soybeans per bushel ($)

JORDAN 'S SUPPLY 6
SCHEDULE FOR
SOYBEANS
5
QUANTITY 4
PRICE SUPPLIED
(PER (THOUSANDS 3
BUSHEL) OF BUSHELS
PER YEAR) 2
$ 2 0
1.75 10 1
2.25 20
3.00 30 0
4.00 45
0 10 20 30 40 50
5.00 45 Thousands of bushels of soybeans
produced per year

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 The Law of Supply
• There is a direct relationship

Price of soybeans per bushel ($)

6
between price and quantity 5
supplied. 4
3
– Quantity supplied rises as 2
price rises, other things 1
constant. 0
– Quantity supplied falls as 0 10 20 30 40 50
price falls, other things Thousands of bushels of soybeans
produced per year
constant.

If the price of a good

then the Qs
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Shifts in Supply Versus Movements Along a
Supply Curve
• Changes in price causes changes in quantity supplied
represented by a movement along a supply curve.
• A movement along a supply curve – the graphic
representation of the effect of a change in price on the
quantity supplied.
• If the amount supplied is affected by anything other than
a change in price, there will be a shift in supply.
• Shift in supply – the graphic representation of the
effect of a change in a factor other than price on supply.

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Change in Quantity Supplied

Price (per unit) S0

Change in quantity
A supplied (a movement
$15
along the curve)

1,250 1,500
Quantity supplied (per unit of time)

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 Shift in Supply

S0
S1
Price (per unit)

A B
$15
Shift in Supply
(a shift of the
curve)
1,250 1,500
Quantity supplied (per unit of time)

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 Changes in Supply
• If other factors do change, Price
– Change in supply 4
– Shift to a new supply curve
3
• Increase in supply
– increase in Qs at every price 2
– supply curve shifts to the right
1
• Decrease in supply
– decrease in Qs at every price 0 20 40 60
Quantity
– supply curve shifts to the left Increasing in supply

2
Decrease in supply
1

0 1 2 3 © iTutor. 2000-2013. All Rights Reserved

 Factors affecting supply
• Other factors besides price
affect how much will be Resource
Prices
supplied:
– Prices of inputs used in Prices of
Technology
the production of a Related
Goods and
And
good. Services
Productivity
Supply
– Technology.
– Suppliers’ expectations.
– Taxes and subsidies. Number Expectations
Of Of
– Prices of related goods Producers Producers

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• Resource price
– When costs go up, profits go down, so that the incentive to supply
also goes down.
– If the price of crude oil (a resource or input into gasoline production)
increases, the quantity supplied of gasoline at each price would
decline, shifting the supply curve to the left.
• Technology
– Advances in technology reduce the number of inputs needed to
produce a given supply of goods.
– Costs go down, profits go up, leading to increased supply.
– If a new method or technique of production is developed, the cost of
producing each good declines and producers are willing to supply
more at each price - shifting the supply curve to the right.
• Price Expectations
– Expectations about the future price will shift the supply.
– If suppliers expect prices to rise in the future, they may store today's
supply to reap higher profits later.

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• Number of sellers
– As more people decide to supply a good the market supply increases.
– If more companies start to make motorcycles, the supply of
motorcycles would increase. If a motorcycle company goes out of
business, the supply of motorcycles would decline, shifting the
supply curve to the left.
• Prices of other goods
– If the price of wheat increases relative to the price of other crops that
could be grown on the same land, such as potatoes or corn, then
producers will want to grow more wheat, ceteris paribus. By
increasing the resources devoted to growing wheat, the supply of
other crops will decline. Goods that are produced using similar
resources are substitutes in production.
– Complements in production are goods that are jointly produced.
Beef cows provide not only steaks and hamburger but also leather
that is used to make belts and shoes. An increase in the price of
steaks will cause an increase in the quantity supplied of steaks and
will also cause an increase (or shift right) in the supply of leather
which is a complement in production.

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 Individual supply & Market supply
• Individual supply
• The supply of a good or service can be defined for an individual
firm, or for a group of firms that make up a market or an industry.
• Supply curve for One supply

• Market supply
• Market supply is the sum of all the quantities of a good or
service supplied per period by all the firms selling in the market for
that good or service.
• Supply curve for all sellers
• Add up individual Qs for each price
• The market supply curve is derived by horizontally adding the
individual supply curves of each supplier.

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 Market Supply
• As with market demand, market supply is the horizontal
summation of individual firms’ supply curves.

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