Supply

1
 Supply Defined

Supply is the different quantities of a good that sellers are

willing and able to sell (produce) at different prices.
Direct positive relationship
•As price increases, …
•As price falls, …
Why? Because, at higher prices, profit seeking
firms have an incentive to produce more.

Example
 Supply and Opportunity Cost

As the price of a product increases, the

opportunity cost of not supplying it increases.

e.g Lawn mowing

 Example of Supply

You own an lawn mower and you are

willing to mow lawns.
How many lawns will you mow at these prices?

Price per Quantity

Supply lawn mowed Supplied
Schedule $1
$5
$20
$50
$100
$1000
 How do we get market Supply?
Vandalay Kruger Industries
Industries Other companies Market
Price Q Supd Price Q Supd Price Q Supd Price Q Supd

$5 10 $5 8 $5 36 $5 54
$4 7 $4 6 $4 28 $4 41
$3 5 $3 4 $3 20 $3 29
$2 3 $2 2 $2 15 $2 20
$1 1 $1 1 $1 10 $1 12
P P P P

$3 $3 $3 $3
S S S S
5 Q 4 Q 25 Q 29 Q
 Graphing Supply

Supply Price of Cereal

Schedule $5 Supply

Price What if new

Quantity
Supplied 4

$5 companies
50 start making
3

$4 40
cereal? 2
$3 30
1
$2 20
$1 10 o 10 20 30 40 50 60 70 80 Q
Quantity of Cereal 6
 Change in Supply

Supply Price of Cereal Supply

Schedule $5 S2
Quantity
Price
Supplied 4

$5 50 70
3

$4 40 60
2
Increase in Supply
$3 30 50
More cereal is produced
1 at each price level
$2 20 40

$1 10 30
o 10 20 30 40 50 60 70 80 Q
Quantity of Cereal 7
 Shifts in Supply
CHANGES IN SUPPLY

If the price goes down there will be a decrease in quantity

supplied.
If the price goes up, there will be an increase in quantity
supplied.Changes in price
An increase in supply means that at each price, producers
DO NOT shift
are willing to supply more.
This is a change in supply, not a
changethe curve!supplied
in quantity

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 Change in Supply

Supply Price of Cereal

Schedule $5 Supply
Quantity
Price
What if a drought
Supplied 4

$5 50
3

$4
destroys
40
corn and wheat
2
$3 30 crops?
1
$2 20
$1 10 o 10 20 30 40 50 60 70 80 Q
Quantity of Cereal 9
 Change in Supply

Supply Price of Cereal Supply

Schedule $5 S2
Quantity
Price
Supplied 4

$5 50 30
3

$4 40 20 Decrease in Supply
2 Less cereal is produced
$3 30 10 at each price level
1
$2 20 1
$1 10 0 o 10 20 30 40 50 60 70 80 Q
Quantity of Cereal 10
 Change in Supply

Supply Price of Cereal

Schedule $5 Supply
Quantity
Price
What if cereal companies
Supplied 4

$5 50
find a quicker
3 way to make
$4 40
2 cereal?
$3 30
1
$2 20
$1 10 o 10 20 30 40 50 60 70 80 Q
Quantity of Cereal 11
 6 Shifters (Factors) of Supply
1. Prices/Availability of inputs
(resources)
2. Number of Sellers
3. Technology
4. Government Action: Taxes &
Subsidies
5. Opportunity Cost of Alternative
Production
6. Future expectations of profit
Changes in PRICE don’t shift the curve. It only
causes movement along the curve.
 Factors of supply – Prices of Inputs (resources)

The cost of inputs (resources) will impact how much is

supplied.
 Factors of supply – Availability of Inputs (resources)

The availability of inputs (resources) will impact how much

is supplied.

e.g. coffee, cocoa, oil

Factors of Supply – Number of sellers

More sellers = increased supply

Fewer sellers = decreased supply

 Factors of supply - Technology

Increase in technology means more effective production

methods
Factors of supply – Government Intervention - Taxes
and subsidies

The introduction or change of a tax will affect the amount

supplied.
e.g alcopops

A tax is essentially an
increase in the costs of
production.
 Factors of supply – Taxes and subsidies

The government grants money to producers so that more

of that item is produced.

This acts as a decrease in the cost of production.

Factors of supply – Opportunity cost of alternative
production

Prices of other goods

If the price of another good increases, it becomes more

attractive to produce that instead.

e.g. vineyards, farmers

Resources must be able

to be switched
 Factors of Supply - Expectations of future profit

E.g. Olympic tourism

 Supply Practice
First, identify the determinant (shifter) then
decide if supply will increase or decrease
Increase or
Shifter Left or Right
Decrease
1
2
3
4
5
6
 Supply Practice
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
Hamburgers
1. Mad cow disease kills 20% of cows
2. Price of hamburgers increase 30%
3. Government taxes burger producers
4. Restaurants can produce burgers
and/or tacos. A demand increase
causes the price for tacos to
increase 500%
5. New bun baking technology cuts
production time in half
6. Minimum wage increases to $20