Demand and Supply
• Supply
• A schedule, which shows the various amounts of a product, which producers are willing and able to sell, at each possible price, during a specified time period.
Law of Supply
• Ceteris Paribus, there is a direct relationship between price and quantity supplied.
Ceteris Paribus
• Ceteris Paribus, means
Holding everything else constant, so that we can ignore it.
Law of Supply
• So if everything else in the universe is ignored:
• When prices rise, quantity supplied rises.
• When prices fall, quantity supplied falls.
Supply vs. Quantity Supplied
• Supply – Shows what producers are willing and able to
produce and sell at a variety of prices.
• Quantity Supplied– Shows the amount producers sell at one specific
price.
Supply vs. Quantity supplied
• In a market, there is a range of prices.
• For each price, there is a unique and corresponding quantity supplied.
• Therefore: supply is made up of a whole series of quantities supplied.
Determinants of Supply
• Price
• Input Prices
• Prices of Related Products
• Number of Sellers
• Technology
• Regulations, taxes, subsidies
• Weather
Determinants of Supply
• Price
Law of Supply tells us the relation between prices and quantities supplied.
Determinants of Supply
• Input Prices
• The prices of all of the materials of production, such as wages, raw materials, software and energy, all strongly affect supply.
Determinants of Supply
• Input Prices
• If the price of any input declines, then the costs of production decline and supply increases.
Determinants of Supply
• Prices of Related Products
• This applies to producers who can produce more than one product.– For example:– Soybeans vs. corn; or different shampoo
products
Determinants of Supply
• Prices of Related Products
• As prices shift, producers will change their product line to stay profitable.
Determinants of Supply
• Number of sellers
• Increase the number of sellers, and supply rises.
• Decrease the number of sellers, and supply falls.
Determinants of Supply
• Technology
• Over time, technology has lowered the costs of production, resulting in lower prices.
Determinants of Supply
• Regulations, taxes, and subsidies
• Federal, state and local government regulations, taxes and subsidies can impact costs.
Determinants of Supply
• Regulations, taxes, and subsidies
• Note: studies have shown that in nearly Note: studies have shown that in nearly all cases, a company’s decision to move is all cases, a company’s decision to move is not affected by local taxes.not affected by local taxes.
Determinants of Supply
• Weather
• Clearly weather affects the supply of agricultural products.
• It can also affect transportation as well.