Transcript Chapter 4 - Supply Notes

Supply
Quantity Supplied
 Amount of any good or service that sellers are
willing and able to sell
 Law of Supply: Other things equal (ceteris
paribus), when the price of a good rises, the
quantity supplied of the good also rises, and when
the price falls the quantity supplied falls.
Market vs. Individual Supply
 Sum the individual supply curves to obtain the
market supply curve
Shifts in Supply
Input Prices: If price of an input rises,
producing the item is less profitable and
the firm supplies less
2. Technology: Innovation reduces labor
needed and reduces costs thus the firm
supplies more
1.
Shifts in Supply (cont.)
3. Expectations: If a firm expects price to rise, it
will supply less to the market today
4. Number of sellers: self explanatory – more
sellers = more supply
Equilibrium
 Point where supply and demand curves intersect
 Creates equilibrium (or market-clearing) price and
equilibrium quantity where both buyers and sellers are
satisfied
Shortage vs. Surplus
 Surplus = Market price is above equilibrium price so there is
too much being supplied… price will fall until equilibrium
 Shortage = Quantity demanded is greater than quantity
supplied; market price is below equilibrium price… price
will rise to equilibrium
Shifts affecting Equilibrium
 Does it shift Demand or Supply or Both?