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Supply and Supply and DemandDemand
Supply and Supply and DemandDemand
SupplySupply
©© 2002 by Nelson, a division of Thomson Canada Limited 2002 by Nelson, a division of Thomson Canada Limited©© 2002 by Nelson, a division of Thomson Canada Limited 2002 by Nelson, a division of Thomson Canada Limited
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 2
SUPPLYSUPPLY
• Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period.
• Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period.
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 3
Determinants of SupplyDeterminants of Supply
• What factors determine how much ice cream you are willing to offer or produce?
1) Product’s Own Price
2) Input prices
3) Technology
4) Expectations
5) Number of sellers
• What factors determine how much ice cream you are willing to offer or produce?
1) Product’s Own Price
2) Input prices
3) Technology
4) Expectations
5) Number of sellers
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 4
1) Price1) Price
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.
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.
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 5
The Supply Schedule and the The Supply Schedule and the Supply CurveSupply Curve
The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.
The supply curve is a graph of the relationship between the price of a good and the quantity supplied.
Ceteris Paribus: “Other thing being equal”
The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.
The supply curve is a graph of the relationship between the price of a good and the quantity supplied.
Ceteris Paribus: “Other thing being equal”
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 6
Table 4-4: Ben’s Supply ScheduleTable 4-4: Ben’s Supply Schedule
53.00
42.50
32.00
21.50
11.00
00.50
00.00
Quantity of cones Supplied
Price of Ice-cream Cone ($)
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 7
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones
6 8 10 120 2
1.50
1.00
1
2.00
3 4
$3.00
2.50
5
0.50
Figure 4-5: Ben’s Supply CurveFigure 4-5: Ben’s Supply Curve
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 8
Market Supply ScheduleMarket Supply Schedule
• Market supply is the sum of all individual supplies at each possible price.
• Graphically, individual supply curves are summed horizontally to obtain the market demand curve.
• Assume the ice cream market has two suppliers as follows…
• Market supply is the sum of all individual supplies at each possible price.
• Graphically, individual supply curves are summed horizontally to obtain the market demand curve.
• Assume the ice cream market has two suppliers as follows…
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 9
53.00
00.50
00.00
BenPrice of Ice-cream
Cone ($)
Table 4-5: Market supply as the Sum of Table 4-5: Market supply as the Sum of Individual SuppliesIndividual Supplies
+
8
0
0
Nicholas
13
42.50
32.00
21.50
11.00
6
4
2
0
10
7
4
1
0
0
Market
=
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 10
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones
S3
S2S1
Decrease in supply
Increase in supply
Figure 4-7: Shifts in the Supply CurveFigure 4-7: Shifts in the Supply Curve
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 11
Table 4-6: The Determinants of Quantity Table 4-6: The Determinants of Quantity SuppliedSupplied
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 12
SummarySummary
• The supply curve shows how the quantity of a good supplied depends upon the price.– According to the law of supply, as the price of
a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward.
– In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers.
– If one of these factors changes, the supply curve shifts.
• The supply curve shows how the quantity of a good supplied depends upon the price.– According to the law of supply, as the price of
a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward.
– In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers.
– If one of these factors changes, the supply curve shifts.
Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 13
The EndThe End