SUPPLY

What is Supply?

The amount of some product that producers are willing

and able to sell at a given price
Law Of Supply

 There is a direct relationship between price and quantity supplied.

Quantity supplied rises as Quantity supplied falls as

price rises, other things constant. price falls, other things constant.

S S
P
U P U
R
P R P
I
P I P
C
L C L
E
Y E Y
Supply Function

 Shows the relation between the supply and those

factors that affect the willingness and ability to
offer goods for sale.
How to Calculate a Linear Supply
Function?

(1) Write down the basic linear function,

(2) find two ordered pairs of price and quantity,
(3) calculate the slope of the supply function, and
(4) calculate its y-intercept.
 PRICE QUANTITY SUPPLIED

Supply Schedule 0 20

5 30
A Supply Schedule
is a table that 10 40
shows the
relationship 15 50
between the price
20 60
of a good and the
quantity supplied.
Given Supply Function as
follows: PRICE QUANTITY
SUPPLIED
A 0

B 5
Qs = 5 + 10P C 15

D 25
Where:
Qs is Quantity Supplied E 42
P is the price
Supply Curve

The Supply Curve is

the graphical
representation of
Supply Schedule,
(with quantity supplied on the
horizontal axis and price on
the vertical axis)
 Market Supply Curve

Supply Curve 40

35

PRICE QUANTITY 30
SUPPLIED
25

20

A 0 2
15

B 5 12 10

C 10 22 5

D 12 26
0
0 2 4 6 8 10 12 14 16 18 20

E 17 36
 Market
MarketSupply
SupplyCurve
Curve

Supply Curve 50
40

45
35
40
PRICE QUANTITY
30
SUPPLIED 35

25
30

25
20
A 0 2 20
15

B 5 12 15

10
10

C 10 22 5
5

D 12 26
0
0
0
0 10
2 20
4 30
6 40
8 50
10 60
12 70
14 80
16 90
18 100
20

E 17 36
Determinants of Supply

Resource Price
Technology
The Price of related goods or price of complementing
products
Firm’s expectation about future prices
Number of Suppliers
Taxes and Subsidy
Price of inputs

If the price of inputs increases the supply curve will shift
left as sellers are less willing or able to sell goods at any
given price. Inputs include land, labor, energy and raw
materials.
Conditions of production

The most significant factor here is the state of technology.

If there is a technological advancement related to the
production of the good, the supply increases.
Prices of related goods

For purposes of supply analysis, related goods refer to

goods from which inputs are derived to be used in the
production of the primary good.
Expectations

Sellers’ expectations concerning future market conditions

can directly affect supply.
Number of suppliers

 As more firms enter the industry the market supply curve will shift out
driving down prices. The market supply curve is the horizontal
summation of the individual supply curves.
Government policies and regulations

 Government intervention can take many forms including

environmental and health regulations, hour and wage laws, taxes,
electrical and natural gas rates and zoning and land use
regulations. These regulations can affect a good’s supply.
 Determinants Relationship
Resource Price Inverse

Technology Direct

Prices of related goods and services Inverse

Firm’s expectations about future prices Inverse

Number of Suppliers Direct

Taxes and Subsidy Inverse and Direct, Respectively

Change in Quantity Supplied VS. Change in Supply
Change in Quantity
Supplied
 A change in quantity supplied refers to a
movement along the supply curve, which
is caused only by a change in price.
 a change in quantity supplied means that
we’re moving along the existing supply
curve
Change in Supply
 a change in supply refers to a shift in the
entire supply curve, which is caused by
shifters such as taxes, production costs,
and technology.
 This means that the entire supply curve
moves left or right
A change in supply means
that the entire supply curve
shifts either left or right. The
initial supply curve S0 shifts to
become either S1 or S2. This is
caused by production
conditions, changes in input
prices, advances in
technology, or changes in
taxes or regulations
A change in the quantity
supplied refers to
movement along the
existing supply curve, S0.
This is a change in price,
caused by a shift in
the demand curve.
A movement along a supply curve, resulting in a change in quantity
supplied, is always caused by a shift in the demand curve.
References

 https://xplaind.com/790162/determinants-of-supply
 http://www.economicsconcepts.com/law_of_supply.htm
 https://courses.lumenlearning.com/boundless-economics/chapter/supply/
 https://quickonomics.com/how-to-calculate-a-linear-supply-function/
 https://courses.lumenlearning.com/economics2e-demo/chapter/changes-in-supply-and-
demand/
 https://en.wikipedia.org/wiki/Supply_(economics)