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Individual Markets: Demand and Supply Chapter 3 Demand and Supply Supply Demand and Supply • Supply • A schedule, which shows the various amounts of a product, which producers are willing and able to sell, at each possible price, during a specified time period. Law of Supply • Ceteris Paribus, there is a direct relationship between price and quantity supplied. Ceteris Paribus • Ceteris Paribus, means Holding everything else constant, so that we can ignore it. Law of Supply • So if everything else in the universe is ignored: • When prices rise, quantity supplied rises. • When prices fall, quantity supplied falls. Supply vs. Quantity Supplied • Supply – Shows what producers are willing and able to produce and sell at a variety of prices. • Quantity Supplied – Shows the amount producers sell at one specific price. Supply vs. Quantity supplied • In a market, there is a range of prices. • For each price, there is a unique and corresponding quantity supplied. • Therefore: supply is made up of a whole series of quantities supplied. Data for Supply Curve Price of Lobster Quantity Supplied 25 20 15 10 5 1000 800 600 400 200 Price of Lobster Supply Curve 30 25 20 15 10 5 0 E B C D A 200 400 600 Quantity Dem anded 800 1000 Determinants of Supply • • • • • • • Price Input Prices Prices of Related Products Number of Sellers Technology Regulations, taxes, subsidies Weather Determinants of Supply • Price Law of Supply tells us the relation between prices and quantities supplied. Determinants of Supply • Input Prices • The prices of all of the materials of production, such as wages, raw materials, software and energy, all strongly affect supply. Determinants of Supply • Input Prices • If the price of any input declines, then the costs of production decline and supply increases. Determinants of Supply • Prices of Related Products • This applies to producers who can produce more than one product. – For example: – Soybeans vs. corn; or different shampoo products Determinants of Supply • Prices of Related Products • As prices shift, producers will change their product line to stay profitable. Determinants of Supply • Number of sellers • Increase the number of sellers, and supply rises. • Decrease the number of sellers, and supply falls. Determinants of Supply • Technology • Over time, technology has lowered the costs of production, resulting in lower prices. Determinants of Supply • Regulations, taxes, and subsidies • Federal, state and local government regulations, taxes and subsidies can impact costs. Determinants of Supply • Regulations, taxes, and subsidies • Note: studies have shown that in nearly all cases, a company’s decision to move is not affected by local taxes. Determinants of Supply • Weather • Clearly weather affects the supply of agricultural products. • It can also affect transportation as well. Determinants of Supply • Expectations • People’s expectations about the future can shape supply in the present. • (Note that economists are having difficulty proving exactly how).