Transcript Supply Chain Management

CASE STUDY
• Two ways to reduce the quantity of
smoking demanded:
-- Public service announcements,
mandatory health warnings on cigarette
packages, and the prohibition of
cigarette advertising on TV (shift
demand curve)
-- Raising the price of cigarettes through
tobacco taxes (move along demand
curve)
SUMMARY
variable
change
Demand
Shift
Income (Normal)
Rise (fall) Rise (fall)
Right (left)
Income (Inferior)
Rise (fall) Fall (rise)
Left (right)
Price of substitute
Rise (fall) Rise (fall)
Right (left)
Price of
complement
Rise (fall) Fall (rise)
Left (right)
Taste
Rise (fall) Rise (fall)
Right (left)
Expected Price
Rise (fall) Rise (fall)
Right (left)
Number of buyers
Rise (fall) Rise (fall)
Right (left)
SUPPLY
• Quantity supplied is the amount of a good
that sellers are willing and able to sell.
• Law of Supply
– The law of supply states that, other things
equal, the quantity supplied of a good rises
when the price of the good rises.
SUPPLY SCHEDULE
• Supply Schedule
– The supply schedule is a table that shows the
relationship between the price of the good and
the quantity supplied.
EXAMPLE OF SUPPLY
SCHEDULE
SUPPLY CURVE
• Supply Curve
– The supply curve is the graph of the
relationship between the price of a good and
the quantity supplied.
Price of
Ice-Cream
Cone
$3.00
1. An
increase
in price ...
2.50
2.00
1.50
1.00
0.50
0
1 2
3
4
5
6
7
8
9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity of cones supplied.
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TWO VIEWS
• For every possible price, it shows the
production rate
• For each unit of item, it shows the
minimum price that the seller is willing to
accept
MARKET SUPPLY
• Market supply refers to the sum of all
individual supplies for all sellers of a
particular good or service.
• Graphically, individual supply curves are
summed horizontally to obtain the market
supply curve.
CHANGE IN QUANTITY
SUPPLIED
• Change in Quantity Supplied
– Movement along the supply curve.
– Caused by a change in price.
CHANGE IN QUANTITY
SUPPLIED
Price of IceCream
Cone
S
C
$3.00
A rise in the price
of ice cream
cones results in a
movement along
the supply curve.
A
1.00
0
1
5
Quantity of
Ice-Cream
Cones
CHANGE IN SUPPLY
• Change in Supply
– A shift in the supply curve, either to the left or
right.
– Caused by a change in a determinant other
than price.
FIGURE 7 SHIFTS IN THE SUPPLY
CURVE
Price of
Ice-Cream
Cone
Supply curve, S3
Decrease
in supply
Supply
curve, S1
Supply
curve, S2
Increase
in supply
0
Quantity of
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning
SHIFT IN THE SUPPLY CURVE
•
•
•
•
Input prices
Technology
Expectations
Number of sellers
SUMMARY
variable
change Supply
Input (factor) Rise
price
(fall)
Technology Rise
(fall)
Expected
Rise
Price
(fall)
Number of Rise
sellers
(fall)
Fall
(rise)
Rise
(fall)
Fall
(rise)
Rise
(fall)
Shift
Left (right)
Right (left)
Left (right)
Right (left)
EQUILIBRIUM
• Equilibrium refers to a situation in which
the price has reached the level where
quantity supplied equals quantity
demanded.
EQUILIBRIUM PRICE AND
QUANTITY
• Equilibrium Price
– The price that balances quantity supplied and
quantity demanded.
– On a graph, it is the price at which the supply
and demand curves intersect.
• Equilibrium Quantity
– The quantity supplied and the quantity
demanded at the equilibrium price.
– On a graph it is the quantity at which the
supply and demand curves intersect.
Price of
Ice-Cream
Cone
Supply
Equilibrium
Equilibrium price
$2.00
Equilibrium
quantity
0
1
2
3
4
5
6
7
8
Demand
9 10 11 12 13
Quantity of Ice-Cream Cones
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SURPLUS AND SHORTAGE
• Surplus
– When price > equilibrium price, then quantity
supplied > quantity demanded.
• There is excess supply or a surplus.
• Suppliers will lower the price to increase sales,
thereby moving toward equilibrium.
• Shortage
– When price < equilibrium price, then quantity
demanded > the quantity supplied.
• There is excess demand or a shortage.
• Suppliers will raise the price due to too many
buyers chasing too few goods, thereby moving
toward equilibrium.
ALTERNATIVE EXAMPLE: #2 LEAD PENCILS
Price
0.05
Quantity
demanded
1000
Quantity
supplied
400
0.10
800
500
0.15
600
600
0.20
400
700
0.25
200
800
QUICK QUIZ 1
• Draw demand and supply curves
• Find equilibrium price and quantity
QUICK QUIZ 2
• How would following events shift either the
demand or the supply of #2 lead pencil?
-- an increase in the use of standardized
exams (using opscan forms)
-- a decrease in the price of ink pens
-- a start of a school year
INCREASE IN DEMAND
Price of
Ice-Cream
Cone
1. Hot weather increases
the demand for ice cream . . .
Supply
New equilibrium
$2.50
2.00
2. . . . resulting
in a higher
price . . .
Initial
equilibrium
D
D
0
7
3. . . . and a higher
quantity sold.
10
Quantity of
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning
DECREASE IN SUPPLY
Price of
Ice-Cream
Cone
S2
1. An increase in the
price of sugar reduces
the supply of ice cream. . .
S1
New
equilibrium
$2.50
Initial equilibrium
2.00
2. . . . resulting
in a higher
price of ice
cream . . .
Demand
0
4
7
3. . . . and a lower
quantity sold.
Quantity of
Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning
SUMMARY
DISCUSSION
• Each of the events listed below has an
impact on the market for bicycles.
1.An increase in the price of automobile.
2.A decrease in incomes of consumers if
bicycles are a normal good.
DISCUSSION-CONTINUED
3.An increase in the price of steel used to
make bicycle frames.
4.An environmental movement shifts tastes
toward bicycling.
DISCUSSION-CONTINUED
5.Consumers expect the price of bicycles to
fall in the future.
6.A technological advance in the
manufacture of bicycles.
DISCUSSION-CONTINUED
7.A reduction in the price of bicycle helmets
and shoes.
8.A decrease in incomes of consumers if
bicycles are an inferior good.