|
|

|

ñs quantity supplied of a good is
the specific amount its managers would
choose to sell over some time period, given
 A particular price for the good
 All other constraints on the firm
 ½arket quantity supplied ëor quantity
supplied) is the specific amount of a good
that all sellers in the market would choose
to sell over some time period, given
 A particular price for the good
 All other constraints on firms
  |
 
es a cho
ce
 uantity that gives firms the highest possible profits when
they take account of the constraints presented to them by
the real world
 s hyothet
ca
 Œoes not make assumptions about firmsñ ability to sell the
good
 Ñow much would firmsñ managers want to sell, given the
price of the good and all other constraints they must
consider?
 esses 
ce
 Ghe price of the good is just one variable among many
that influences quantity supplied
 Weñll assume that all other influences on supply are held
constant, so we can explore the relationship between price
and quantity supplied
 |
|
 „tates that when the price of a good rises
and everything else remains the same, the
quantity of the good supplied will rise.

 Ghe words¦ Deveh

 ese e
s he
se e
o
 ^n the real world many variables change
simultaneously
 Ñowever, in order to understand the economy we
must first understand each variable separately
 We assume Deverything else remains the same in
order to understand how supply reacts to price
 || 
|
  schede·shows quantities of a
good or service firms would choose to
produce and sell at different prices, with all
other variables held constant
  cve·graphical depiction of a
supply schedule
 „hows quantity of a good or service supplied at
various prices, with all other variables held
constant.
 Ghe supply curve is always slopping upwards.
 

 
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Ghe supply curve has a positive slope, consistent
with the law of supply.
  
| |
 A che
 he 
ce o  ood causes a
movement along the supply curve
 A rise ëfall) in price would cause a rightward ëleftward)
movement along the supply curve

 A îo
 so
o coss will cause
a shift in the supply curve itself
 „upply curve has shifted to the right of the old curve
as transportation costs have dropped
 A change in any variable that affects supply·except
for the goodñs price·causes the supply curve to shift
   
|
  
ces
 A fall ërise) in the price of an input causes an increase
ëdecrease) in supply, shifting the supply curve to the right
ëleft)
 
ce o eeî ooîs
 When the price of an alternate good rises ëfalls), the supply
curve for the good in question shifts leftward ërightward)
 echoo
 rost-saving technological advances increase the supply of a
good, shifting the supply curve to the right
   
|
 !eo 
s
 An increase ëdecrease) in the number of sellers·with no
other changes·shifts the supply curve to the right ëleft)
 "eceî
ce
 An expectation of a future price increase ëdecrease) shifts
the current supply curve to the left ëright).
 "esî!s
î
es
 When taxes go up, costs go up, and profits go down,
leading suppliers to reduce output.
 When government subsidies go up, costs go down, and
profits go up, leading suppliers to increase output.
   
|
 hes
 #ehe
 mavorable weather
 ^ncreases crop yields
 rauses a rightward shift of the supply curve for that
crop
 Unfavorable weather
 Œestroys crops
 „hrinks yields
 „hifts the supply curve leftward
 he  vo!e  eves 
e ec 
s
  e
 rausing a leftward shift in the supply curve
  |  
 |
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 |$% 
|   

he  &e
s
 eq

!

 ooth price of good and quantity bought and
sold have settled into a state of rest
 Ghe equilibrium price and equilibrium quantity
are values for price and quantity in the market
but, once achieved, will remain constant
 Unless and until supply curve or demand curve
shifts
 Ghe equilibrium 
ce î eq

!

'
 c !e oî o he ve
c
î ho
(o "es¦ respectively
 At point where supply and demand curves
cross
 |$

uquilibrium occurs at a price of $3 and a quantity

of 30 units.
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 * 

 uxcess demand
 At a given price, the excess of quantity
demanded over quantity supplied
 Price of the good will rise as buyers
compete with each other to get more of
the good than is available
 *| 
+ 
 
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) '


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'


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 #
$


$'


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0


  
uxcess „upply

 uxcess „upply
 At a given price, the excess of quantity
supplied over quantity demanded
 Price of the good will fall as sellers
compete with each other to sell more of
the good than buyers want
 ||$
| $  ||
 „uppose that demand


is given by the
equation w
´ w à , where


is
quantity demanded, P is the price of the
good. „upply is given by   à
where is quantity supplied.
 What is the equilibrium price and quantity?
 | 
|
 A measure of the extent to which the
quantity supplied of a good changes when
the price of the good changes, and all
other influences on sellerƞs plans remain
the same ëcateris paribus)

 Price ulasticity of „upply ëus)

= % rhange in s
% rhange in Price
  
| |

 Percentage change in quantity supplied

Percentage change in price

ƥ ^f Price ulasticity of „upply > 1, „upply is elastic

ƥ ^f Price ulasticity of „upply = 1, „upply is unit
elastic
ƥ ^f price elasticity of supply< 1, „upply is inelastic
 | 
|
 e ec s
c  ƒ When the quantity
supplied changes by a very large percentage in
response to an almost zero increase in price
 s
c  ƒ When the % change in the
quantity supplied > the % change in the price
 
 s
c  ƒ When the % change in
the quantity supplied = the % change in price
 es
c  ƒ When the % change in the
quantity supplied is < the % change in price
 e ec es
c  ƒ When the quantity
supplied remains the same as the price changes
à
 
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‰
àà

) ü



hee
es
s
c
,
 co s!s

o oss
!


es
 ran labour or capital inputs be switched easily
when there is a change in demand?
 When factor substitution is possible and can
be achieved at low cost, supply will be elastic
 When factors are highly specialized,
substitution may be harder and thus supply
will be inelastic

 e oîc
o cc
 v
!e
 When there is spare capacity, businesses can
expand output easily to meet rising demand
without upward pressure on costs
  -
 oc&s.
veo
es)v
!eoeeîeî
 A low level of stocks makes supply inelastic in the
short term
 When stocks can be released onto the market,
supply is elastic
 he
e eo#eî
 ½omentary period ëfixed supply)
 „hort run ëinelastic supply)
 Long run ëelastic supply)
 

c


sos
 u.g. the impact of patents that limit which firms
can supply a product
cosheeî
÷our turn to calculate some Pe„
 ralculations to doƦ
1. Ghe price of a product falls from 60p to 40p
causing supply to contract from 120 to 100.
2. Ghe price of a product falls from $45 to $40.
As a result supply falls from 6000 to 5000.
3. Ghe price of a product rises from ƪ50 to ƪ60
causing supply to extend from 100 to 200.
4. A productƞs price rises from £12 to £13 but
supply remains unchanged at 2000.
5. „upply extends from 900 to 1200 because of
a rise in price from £10 to £11.
 îhes#es-
Ghe price of a product falls from 60p to 40p causing supply
to contract from 120 to 100.
e/0123442/567
Ghe price of a product falls from $45 to $40. As a result
supply falls from 6000 to 5000.
e/0123002/068
Ghe price of a product rises from ƪ50 to ƪ60 causing supply
to extend from 100 to 200.
e/05523952/8
A productƞs price rises from £12 to £13 but supply remains
unchanged at 2000.
e/523742/5
„upply extends from 900 to 1200 because of a rise in price
from £10 to £11.
e/44423052/44