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Supply and Demand
Supply
Definition
• The amount of goods and services that
producers are willing and able to sell at
any one time
• Reflects producer behavior, not consumer
behavior
– Does not take demand into consideration
– Motto: “On Planet supply, they will always
buy.”
MORE PROFIT
Supply Curve
• Illustrates the amounts that producers are
willing to make available at various
prices
– Reflects the range of possibilities
– Curve always slants up and to the right
– Price is always on vertical axis, quantity is
always on the horizontal axis
• Shows the relationship between price and quantity
supplied
Quantity Supplied
• The specific amount of a product that
would be available for sale at a specific
price
– Its shown as a number along the bottom of
the graph
Law of Supply
• Shows the relationship between price and
quantity supplied
– Cause = Price
– Effect = Quantity Supplied
Law of Supply continued
• As the price of an item increases, the quantity
supplied will increase
– What affect does this have on profit?
– As profits increase, the quantity supplied increases
•  P → Qs 
– As the price of an item decreases, the quantity
supplied will decrease
• ↓P → Qs ↓
• Conclusion: Supply varies directly with changes
in price
Shifts in Supply
• An increase in
supply shifts the
curve to the right
(not up)
• A decrease in
supply shifts the
curve left (not
down)
Determinants of Supply
• Factors that cause changes in supply and
shift the curve either left (decrease) or
right (increase)
– There is a difference in a change in supply
and a change in quantity supplied
Determinant: Competition
• Acts like substitutes for consumers
• Competition puts pressure on prices,
driving them down
– ↑competition→↓profits→↓S
– ↓competition→↑profits→↑S
Determinant: Resource Costs
• Factors of production: land, labor, capital, and
management
• When resource costs increase, profits decrease,
leading to a decrease in willingness to supply
↑Cost of Resources → ↓ Profit → ↓Supply and the curve
shifts left
• Likewise:
↓Cost of Resources →↑ Profit → ↑Supply and the curve
shifts right
Determinant: Regulation by
Government
• Taxes, laws, restrictions, all equal
expenses to business
– ↑Regulation =↑ Costs
– ↓Regulation = ↓ Costs
→ Profits↓→Supply↓
→Profits ↑→Supply↑
Determinant: Expected Price
Change
• Prepare for future sales
• Must adjust production NOW to be ready
for the price change
– Expect Price ↑→ S↑
– Expect Price ↓→ S↓
Determinant: Efficiency
• Often the result of innovative technology
– Production is better, cheaper, faster, more
efficient
↑Efficiency →  Profit →  Supply and the curve shifts
right
-Reduced efficiency means reduction in supply
↓Efficiency →↓Profits → ↓ Supply and the curve
shifts left
Profit Motive
• Increased profit causes an increase in
supply
 Profit →  Supply
• Decreased profit causes a decrease in
supply
↓ Profit → ↓Supply
• Profit isn’t a determinant but if you
remember how profit is affected, you will
remember in which direction supply shifts.