Transcript Determinants of Supply

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
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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).