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Supply
Outline
I. Law of Supply
II. Supply Schedules and Supply Curves
A. Supply Schedules
B. Supply Curves
C. Market Supply
Outline (Cont.)
III. Change in Supply vs. Change in
Quantity Supplied
A. Change in Supply
B. Change in Quantity Supplied
What is Supply?
Supply is how much a firm is willing to sell
at every given price, ceteris paribus
 Thus, if all else remains the same and the
price of a good goes up, what would you
expect the response of a firm to be?

– To produce more, since prices are going up,
so will profits
Law of Supply
Law of Supply - the price of a product
(or service) is directly related to the
quantity supplied, ceteris paribus.
 Quantity Supplied - the amount of a
good (or service) produced by firms at
a particular price.
 While demand typically refers to
consumers, supply typically refers to
firms.

Supply Schedules and Curves
Just like we were able to construct a
Demand Schedule and Demand Curve,
we will do the same for Supply
 Supply Schedule - a table showing the
relationship between the price of a
good and the quantity supplied per
period of time, ceteris paribus.

Supply Schedule
Price of CDs ($)
Quantity of CDs
Supplied per month
Supply Schedule
P ($)
Qs per month
$20
15
Supply Schedule
P ($)
Qs per month
$20
15
$15
7
Supply Schedule
P ($)
Qs per month
$20
15
$15
7
$10
5
Supply Schedules and Curves

Supply Curve - a diagram showing the
relationship between the price of a
good and the quantity supplied per
period of time, ceteris paribus.
Supply Curve
Supply Curve
P($)
Remember to ALWAYS label
your axes!
Qs per month
Supply Curve
P($)
20
15
10
5
0
5
10
15
Qs per month
Supply Curve
P($)
20
A
15
10
5
0
5
10
15
Qs per month
Supply Curve
P($)
20
A
B
15
10
5
0
5
10
15
Qs per month
Supply Curve
P($)
20
A
B
15
10
C
5
0
5
10
15
Qs per month
Supply Curve
P($)
20
AS
B
15
10
C
5
0
5
10
15
Qs per month
Market Supply Curve

Market Supply Curve - a curve showing
the relationship between the price of a
good and the total quantity supplied by all
firms in the market per period of time,
ceteris paribus.

Market supply curves are obtained by
summing the supply curves of individual
firms.
Market Supply Schedule
Market Supply Schedule - a table showing
the relationship between the price of a
good and the total quantity supplied by all
firms in the market per period of time,
ceteris paribus.
 Market supply schedules are obtained by
summing the supply curves of individual
firms.

Market Supply Schedule
P($)
5
Firm A Firm B Firm C Market
Qs
Qs
Qs
Qs
1
3
4
8
10
2
8
5
15
15
3
12
7
22
Change in S vs. Change in Qs

Change in Supply - a shift of the supply
curve

Changes in Supply
• Increase in supply - supply curve shifts to
the right
• Decrease in supply - supply curve shifts to
the left
Change in Supply
Factors Which Cause a Change in Supply
 Prices of Relevant Resources
 Technology
 Number of Sellers
 Expectations of Future Price
 Taxes and Subsidies
 Changes in the Availability of Credit
Price of Relevant Resources
Let’s say the cost of plastic (used in
making CDs) decreases
 It is now cheaper to make every
quantity of CDs

Resource Price Decrease

So, before the cost decrease, at a price of
$20 the firm was willing to make 15 CDs.
If costs go down, will the firm still need
$20 to make them want to supply 15 CDs?
– No, in order to make the same profit they are
willing to take a lower price
Supply Curve
P($)
20
A
15
A’
10
5
0
5
10
15
Qs per month
Resource Price Decrease
Thus the firm is willing to supply every
quantity at a lower price.
 Or in other words, at every price the firm
is willing to supply more of the good
 In summary, if the price of a resource
goes down, supply increases (shifts to the
right)

Supply Curve Shift
Old Supply Curve
P($)
20
A
A’
15
New Supply Curve
10
5
0
5
10
15
Qs per month
Price of Relevant Resources
Let’s say the cost of plastic (used in
making CDs) increases
 It is now more expensive to make every
quantity of CDs

Resource Price Decrease

So, before the cost increase, at a price of
$15 the firm was willing to make 7 CDs. If
costs go up, will the firm still need $15 to
make them want to supply 7 CDs?
– No, in order to make the same profit they are
going to need a higher price to cover the
higher costs
Supply Curve
P($)
20
B’
B
15
10
5
0
5
10
15
Qs per month
Resource Price Decrease
Thus the firm is willing to supply every
quantity at a higher price.
 Or in other words, at every price the firm
is willing to supply less of the good
 In summary, if the price of a resource
goes up, supply decreases (shifts to the
left)

Supply Curve Shift
P($)
20
New Supply Curve
Old Supply Curve
B’
B
15
10
5
0
5
10
15
Qs per month
Technology

Improvement in technology lowers
costs
• Lower cost of production increases Supply

Worsening of technology increases
costs
• Higher cost of production decreases Supply
Number of Sellers

More sellers in the market means more
quantity is being supplied at every price
• Increase in supply of the good

Less sellers in the market means less
quantity is being supplied at every price
• Decrease supply of the good
Expectations of Future Prices

Firms expect price of their good to
decrease in the future
• Supply increases today
• Firm would prefer to sell today when price
is higher
Expectations of Future Prices

Firms expect price of their good to
increase in the future
• Supply decreases today
• Firm would prefer to wait until the good
can be sold for a higher price
Taxes and Subsidies

Increase in tax on the good decreases
supply
• Raises the cost of production

Decrease in tax on the good increases
supply
• Lowers the cost of production
Taxes and Subsidies
A subsidy is an amount the paid to the
producer for each unit of a good produced
 Increase in Subsidy on the Good Increases
Supply

• Lowers the costs of production

Decrease in Subsidy on the Good
Decreases Supply
• Raises the costs of production
Availability of Credit

If it is easier for the firm to borrow money,
the firm will be able to produce more
– Thus Supply increases

If it is more difficult for the firm to borrow
money, the firm will have to produce less
– Thus Supply decreases
Change in Quantity Supplied

Change in Quantity Supplied (DQs) movement along a supply curve
• A change in quantity supplied can only be
caused by a change in the price of the good.

Changes in Quantity Supplied
• Increase in Qs - a movement to the right
along a supply curve
• Decrease in Qs - a movement to the left along
a supply curve
Increase in Supply
Increase in Supply
P
Qs
Increase in Supply
P
S
Qs
Increase in Supply
P
S
Qs
Increase in Supply
P
S
S’
Qs
Increase in Qs
Increase in Qs
P($)
Qs per month
Increase in Qs
P($)
S
Qs per month
Increase in Qs
S
P($)
A
Qs per month
Increase in Qs
S
P($)
A
Qs per month
Increase in Qs
S
P($)
B
A
Qs per month