Transcript microfinance semester 1

Supply Analysis
1
CH # 5
MICRO
Economics
Supply
‫تجزيه‌‌وتحليل‌‌عرضه‬
2 / 99
MICRO
Economics
TERMS TO KNOW:
1
2
3
Meaning of supply and Stock
Law of supply, schedule and
Diagram
Changes in supply
MICRO
Economics
What is Supply?
Supply is the willingness and ability of sellers to
produce and offer to sell different quantities of a
good at different prices during a specific time
period.
4 / 99
MICRO
Economics
Supply and Stock:
‫ عرضه‬ Supply means the quantities of a
commodity offered for sale at a given
price.
‫ ذخيره‬ Stock means the total quantity of a
commodity which a seller has with
him in warehouse and has not yet
brought for sale.
MICRO
Economics
Firm’s Supply Curve and
Market Supply Curve
A firm’s supply curve is a supply curve for that
particular firm
A market supply curve is the sum of all firm’s
supply curves.
6 / 99
MICRO
Economics
Reserve price
This the minimum price which a seller does not
want to sell any quantity.
For example , a person is selling chairs and
minimum price is the 500 AF, less than this price
seller is not his chairs, its called reserve price.
That depend upon on product nature and
circumtanceses.
7 / 99
MICRO
Economics
Supply types
Very short
supply
Short supply
Long supply
8 / 99
MICRO
Economics
1 .Very short supply
Refers to day to day to market supply. This kind
of supply is fixed and can not be increased
suddenly and also perishable goods.
9 / 99
MICRO
Economics
Short Supply
Refers to such period of time which is enough to
make adjustment by sellers to respond to price
change. However, the time available is not very
long. So, it is possible to manage supply within
short time says 2 or 3 days.
10 / 99
MICRO
Economics
Long period supply
Long period supply means that firm and industry
having enough time to adjust his supply
according to demand of peoples in future, long
period supply all factors of production are
variables, producers can change labor, land,
capital within that time
11 / 99
MICRO
Economics
LAW OF SUPPLY
‫قانون عرضه‬
The law of supply states that, other factors remaining the
same, when the price of a particular commodity rises, its
quantity supplied (Qs) also rises and and decreases with
fall in price..
There is a direct or positive relationship between the price
of a commodity and quantity offered for sale over a
specified period of time.
MICRO
Economics
Schedule and Diagram:
‫جدول‌و نمودار‬
 Law of Supply can be explained with the help of the following schedule
and a diagram.
Supply
Line
Price
Price of good (X)
20
25
Quantity
supplied (Qs)
35
100
30
150
25
30
180
35
200
20
100
150 180
200
Qs
MICRO
Economics
Changes in Supply

The economists classify the changes in supply into two
types:
I.
Movements along the supply curve (supply changes due to
change in price):
II.
Shift of the supply curve (changes in supply due to change
in other factors)
MICRO
Economics
Movement VS
Shift in supply
Price
Other factors
MICRO
Economics
Shift in Supply because
of following factors
Prices of Resources
Technology
Taxes
Quotas
Number of Sellers
Future Price
Weather
Subsidies
16 / 99
MICRO
Economics
Prices of Resources
When resource prices fall, sellers are willing and
able to produce more of the good and offer it for
sale.
17 / 99
MICRO
Economics
Technology
Technology is the body of skills and knowledge
concerning the use or resources in production.
An advancement in technology is the ability to
produce more output with a fixed amount of
resources.
An advancement in technology can help lower
the per-unit cost, which is the average cost of
producing the good.
18 / 99
MICRO
Economics
Taxes
Taxes on production can increase the per-unit
costs of producing a good. Taxes cause the
supply curve to shift to the left.
19 / 99
MICRO
Economics
Subsidies
Subsidies are financial payments made by
government for certain actions. Subsidies can
increase production, causing the supply curve to
shift to the right.
20 / 99
MICRO
Economics
Number of Sellers
The number of sellers can also impact the
supply curve. If more sellers begin producing a
good, supply increases, shifting the supply curve
to the right.
21 / 99
MICRO
Economics
Future Price
Expectations of future price movements can
cause sellers to either increase or decrease the
current supply.
22 / 99
MICRO
Economics
Weather
Think of the effect the weather can have on the
supply of agricultural goods such as corn and
wheat.
23 / 99
MICRO
Economics
Determinants of Supply
 Changes in factor prices (cost of production decrease or
increase) if COP is decreased so low price & more supply.
 Changes in Technique (improved techniques will lower cost of
production so more supply)
 Improvement in the means of transportation
 Climatic changes in case of Agricultural products (if good
weather then bumper crops & more supply)
 Political changes
MICRO
Economics
Changes in Supply (cont’d):
Movements along the supply curve:
Price
c
P3
b
P2
P1
a
Q1
Q2
Q3
Qs
MICRO
Economics
Changes in Supply (cont’d):
 Shift of the supply curve:
S0
Price
S1
Rise
Fall
P1
Q0
Q1
Q2
Qs
S2
MICRO
Economics
Market Effects of
Changes in Supply
Changes in Supply Shift the Supply Curve
An increase in supply shifts the
supply curve to the right when:
A decrease in supply shifts the
supply curve to the left when:
The cost of an input decreases
The cost of an input increases
A technological advance decreases
production cost
The number of firms increases
The number of firms decreases
Producers expect a lower price in
the future
Producers expect a higher price in
the future
Product is subsidized
27 of 42
Product is taxed
MICRO
Economics
Key Terms
perfectly competitive market
change in quantity supplied
demand schedule
market supply curve
individual demand curve
market equilibrium
quantity demanded
excess demand
law of demand
excess supply
change in quantity demanded
change in demand
market demand curve
normal good
supply schedule
substitute good
quantity supplied
complementary good
inferior good
change in supply
28 of 42
MICRO
Economics
MARKET EQUILIBRIUM
(Demand and supply)
MICRO
Economics
DEMAND:
The quantity of a commodity or service
consumer wanted to buy at a specified
price and time.
SUPPLY
It is the amount of a commodity that sellers are
able and willing to offer for sale at different
prices per unit of time.
MICRO
Economics
Equilibrium
The equilibrium is a market situation in which
demand for a product becomes equal to the
supply of the product.
The equilibrium price is the price at which the
quantity of a good demanded in a given time
period equals the quantity supplied.
MICRO
Economics
Price Equilibrium
The price of the commodity in the market is
determined by the inter-section of the forces
of demand and supply. The price at which
demand and supply are equal, is known as an
equilibrium price.
The quantity bought and sold at this equilibrium price is
known as equilibrium output or amount.
MICRO
Economics
EQUILIBRIUM
PRICE
QS(SUPPLY)
QD(DEMAND)
MARKET
05
10
15
20
25
10
20
30
40
50
50
40
30
20
10
D>S
D>S
D=S
D<S
D<S
GRAPHICAL
EQUILIBRIUM
MICRO
Economics
equilibrium
supply
PRICE
=15
demand
QD=QS
30
MICRO
Economics
Market Surplus
A market surplus is the amount by which the
quantity supplied exceeds the quantity
demanded at a given price – excess supply.
A market surplus is created when the seller’s
asking prices are too high.
When prices are high so demand will go down
and ultimately demand and supply equality will
be attained.
MICRO
Economics
Market Shortage
A market shortage is the amount by which the
quantity demanded exceeds the quantity
supplied at a given price – excess demand.
In market shortage the prices will go up and
ultimately will led to more supply.
Thus equilibrium is the situation where both
consumers as well as producers are agreed
(acceptable situation)and price is settled.
PriceMICRO
S
Economics
PE
D
QE
Quantity
PE and QE represent the equilibrium price
and quantity
37
37 / 99
MICRO
Economics

What is
Equilibrium Price?
The price that equates the quantity demanded and the quantity
supplied
38
38 / 99
MICRO
Economics
What happens if price is
below equilibrium?


A shortage, or
excess demand, arises
39
39 / 99
P
At MICRO
2, QD > QS, thus a shortage or excess demand exists
Economics
S
P2
D
Shortage
QS
QD
40
40
40 / 99
MICRO
Economics
How is the shortage
eliminated?
 The price rises, leading to
a decrease in quantity
demanded and an
increase in quantity
supplied.
41
41 / 99
MICRO
Economics
What happens if price is
above equilibrium?


A surplus, or
excess supply, arises
42
42 / 99
AtMICRO
P1, QD < QS, thus a surplus or excess supply
Economics
exists
Surplus
P1
S
D
QS
QD
43
43
43 / 99
MICRO
Economics
How is the surplus
eliminated?
 The price falls, leading to
a decrease in quantity
supplied and an increase
in quantity demanded.
44
44 / 99
Summary, shortages, surpluses, and equilibrium
MICRO
Economics
P1
Surplus
S
P3
P2
Shortage
D
Q3
©1999 South-Western College
Publishing
45 / 99
45
45
MICRO
Economics
Summary, supply changes




Increased supply,
price falls, quantity rises
Decreased supply,
price rises, quantity falls
46
46 / 99
MICRO
Economics
Objective Questions
Which one is increasing function of price
1. Demand
2. Supply
3. Consumption
It describe the law of supply
1. Supply curve
2. Supply equation
3. Supply schedule
47 / 99
MICRO
Economics
Questions
Supply curve will shift when
1. Price falls
2. Price falls
3. Technological change
supply curve explain as
1. The relationship between price and supply
2. The relationship between price and demand
3. The relationship between price and profit
48 / 99
MICRO
Economics
Questions
If tax rate increase than what happen to supply
1. Supply line will Extended
2. Supply line Contracted
3. Supply line shift leftward
4. Supply line will shift rightward
49 / 99
MICRO
Economics
 If population increase than supply line
1. Extension
2. contraction
3. Rightward shift
4. Leftward shift
What will best explain a shift in the market supply curve to
right
1. An advertisement successful promote the good
2. A new technique makes it cheaper to produce
3. The government introduce new tax
4. The price of raw materials increase
50 / 99