Download Supply

ECON107
Principles of
Microeconomics
Week 5
SEPTEMBER 2013
Chapter-3
1
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Dr. Mazharul Islam
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Supply
Dr. Mazharul Islam
3
Lesson Objectives
 Define
supply and quantity supplied
 Explain law of supply and influences of
supply
 Explain how to draw supply curve and make
supply schedule
 Explain how demand and supply determine
prices and quantities bought and sold
 Use the demand and supply model to make
predictions about changes in prices and
quantities
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Supply
 Supply
refers how much of a
particular good producers are willing
and able to sell at a given price
during a given period.
 Quantity supplied refers the quantity
of a commodity that producers are
willing to sell at a particular price at a
particular point of time when other
things constant.
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Supply
A Movement Along
the Supply Curve
When the price of the
good changes and
other influences on
sellers’ plans remain
the same, the quantity 10
supplied changes and
there is a movement
along the supply curve.

20
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Supply
A Shift of the Supply
Curve
If the price remains the
same but some other
influence on sellers’
plans changes, supply
changes and the
supply curve shifts.

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Law of Supply
Other things remaining the same, A
direct relationship exists between price
and quantity supplied
As
Price Rises…
…Quantity Supplied Rises
As
Price Falls…
…Quantity Supplied Falls
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Supply Curve and Supply Schedule
The
supply curve shows the relationship between
the quantity supplied of a good and its price when
all other influences on producers’ planned sales
CORN
remain the same.
P QS
SUPPLY SCHEDULE
A Series of Possible Prices
…a specified time period
…other things being equal
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A
B
C
D
E
$1
2
3
4
5
5
20
35
50
60
Various Amounts
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Supply Curve and Supply Schedule
Price of Corn
P
$5
Producers are
willing to supply a
good only if they
can at least cover
their marginal cost
of production.
The lowest
price at which
someone is
willing to sell
an additional
unit is
marginal cost.
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S
P QS
4
3
2
1
CORN
Connect the Points
$5
4
3
2
1
60
50
35
20
5
Quantity of Corn
o
o
10 20 30 40 50 60 70 80
Q
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A Change in Supply
(Determinants or Factors of Supply)
Six main factors (determinants) that
change supply. These are as follows:
Prices of Relevant Resources (Factors of
production)
 Technology
 Taxes, Subsidies, & State of Nature
 Prices of Related Goods produced.
 Producer Expectations on future prices.
 Number of Sellers (suppliers)

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A Change in Supply
(Determinants or Factors of Supply)
Prices of Relevant Resource (Factors of
production)
 Relevant
resources are those employed in the
production of the good in question.
 If the price of some relevant resource increases 
production cost increase  Amount of production
decrease  supply decreases  supply curve
shifts to the left.
 If the price of some relevant resource decreases 
production cost decrease  Amount of production
increase  supply increases  supply curve shifts
to the right .
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Dr. Mazharul Islam
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A Change in Supply
(Determinants or Factors of Supply)
P
Price of Corn
$5
4
Increase in
Supply
S
S’
3
2
1
o
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Increase
in Quantity
Supplied
10 20 30 40 50 60 70 80
Quantity of Corn
CORN
P
$5
4
3
2
1
QS
60 80
50 70
35 60
20 45
5 30
Q
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A Change in Supply
(Determinants or Factors of Supply)
Technology
If a more efficient technology is discovered,
same resource can produce more 
production costs fall  suppliers will be
more willing and able to supply the good 
rightward shift of the supply curve.
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A Change in Supply
(Determinants or Factors of Supply)
Prices of Related Goods produced
 For
example, if the price of Soybean oil
increases to produce more they will hire
more resources with bit higher price the
corn oil producers will get less resources to
produce their products  supply of corn oil
declines and supply curve for corn oil shifts
leftward.
 Conversely,
a fall in the price of soybean
makes corn oil production more profitable 
supply for corn oil increases and supply curve
shifts rightward.
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A Change in Supply
(Determinants or Factors of Supply)
Prices of Related Goods produced
 Goods
are complements in production if
they must be produced together.
 The supply of a good increases if the
price of a complement in production
rises (printer vs. ink jet cartridge OR a left
shoe and a right).
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A Change in Supply
(Determinants or Factors of Supply)
Producer Expectations on future prices.
 Changes
in producer expectations with
respect to the future can change current
supply.
 If iPhone suppliers expect higher prices in the
future, they may begin to expand their
product today and stock current supply
decreases  supply curve shifts leftward.
 If iPhone suppliers expect lower prices in the
future, they will try to sell all of their products
today current supply increases  supply
curve shifts rightward.

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A Change in Supply
(Determinants or Factors of Supply)
Number of Sellers (suppliers)
 If
the number of producers increases, supply
increases  shifts to the right
 If
the number of producers decreases,
supply will decrease  shift to the left
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Dr. Mazharul Islam
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A Change in Supply
(Determinants or Factors of Supply)
Taxes, Subsidies, & State of Nature
 Businesses
treat most taxes as costs. An
increase in sales or property taxes will
increase production costs and reduce
supply, supply curve shifts leftward. Vice
versa also true.
 If government subsidizes the production of a
good, it reduce the producers production
costs and supply increase and supply curve
shifts rightward.
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A Change in Supply
(Determinants or Factors of Supply)
Taxes, Subsidies, & State of Nature
The state of nature includes all the natural
forces that influence production—for
example, the weather.
 Any favorable natural forces increases
amount of production which turn to increase
supply and shifts the supply curve rightward.
 Any unfavorable natural forces decreases
amount of production which turn to
decrease supply and shifts the supply curve
leftward.
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Now it’s over for today. Do you
have any question?
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Dr. Mazharul Islam