Transcript Supply + Interactions

Supply
Supply

Quantity of a good/service producers are willing
and able to sell at a specific price.


Curve: UPWARD from lower left --> right
LAW OF SUPPLY:


Producers are willing to sell more at a higher prices.
Q sold as P and as P
Supply Schedule: Masks @
Halloween
Price
30
25
20
15
10
5
Quantity
350
300
250
200
150
100
1.
2.
P
What quantities of masks will be supplied at $17.50?
What conclusions about producer supply can you draw
from this schedule?
S
Q
Determinants of Supply
Price of Resources:
1.

Increase in cost of resources = decrease in supply (leftward shift)
Technology and Productivity:
2.

Resources used more efficiently = more production at same cost
(rightward shift)

Ex: Henry Ford --> New technology (increase supply)

Assembly line
Expectations of Producers:
3.

Change quantity offered for sale

Technology/Resources
Determinants of Supply
Number of Producers:
4.

When more people produce a good/service supply increases
(rightward shift)

Ex: Increase in supply means decrease in price

Lack of competition is attractive to suppliers
Price of Related Goods/Services:
5.

Opportunity costs of producing and selling a particular good or
service is a forgone opportunity to produce others.
Supply & Demand
Interactions
6 TO GO
Economic Dilemma:



Consumers will buy more of a good or service when the
price is low.
Producers will only sell more of a good or service when
prices are high.
In a free market: Sellers are free to sell and buyers are
free to buy.

Supply & Demand determine Market Prices:

Price occurs as a result of interactions between people willing to
buy and sell.
Equilibrium Price

Prices at which the quantity demanded is equal to
the quantity supplied.

Generally: producers have an idea of how many
units they should sell at a given price.

Seller will usually adjust prices until quantity demanded
matches quantity supplied.

Unless the determinants of supply or demand
change.
Skateboard Market
Price
Quantity
Quantity
Demanded Supplied
100
0.5 Million
2.0 Million
80
0.75 M
1.5 M
60
1.0 M
1.0 M
40
1.25 M
0.5 M
20
2.0 M
.25 M
.5
1.
2.
1.0
1.5
What is the equilibrium price of skateboards?
What is the quantity of skateboards demanded and supplied
at the equilibrium price?
2.0
2.5
Disequilibrium

Imbalance between supply and demand.

Very Common


Determinants are constantly changing.
Ex’s:



New sporting goods store opens with lower priced skateboards.
Demand for skateboards fall.
Costs of producing boards lowers.


--> Process of reaching equilibrium will start all over
again.
--> 1000s of markets 1000s of products = constant
change.
Price Controls:

Surplus: is a condition in which the amount supplied is
greater than the amount demanded.

Solve:



Cut Prices
Reduce Production
Shortage: is a condition in which prices are set to low
and the quantity demanded is greater than quantity
supplied.

Solve:


Increase Prices
Increase Production
Surplus and Shortages of Light
Weight Jackets
P
S
80
70
60
50
40
30
20
D
10
1.
2.
3.
Q
According to the graph what happens when jacket prices are
set above the equilibrium?
Below the equilibrium?
If prices rise to $55 what will happen in the market for North Face Jackets?
5
10
15
20 25
30