ECO 003 – Supply concepts

Supply refers to the behavior of suppliers (or producers) on their willingness and ability
to make products available at given prices.

Quantity supplied pertains to the amount of goods and services suppliers or producers
are able to make available at given prices.

Supply schedule refers to the tabular representation of prices and their corresponding
quantities supplied by suppliers.

Supply curve is a graphical representation/depiction of a supply schedule The general

appearance of this curve is an upward sloping curve from left to right.

The law of supply states that “when prices of commodities tend to increase, the quantity
being supplied by producers also tend to increase; while the opposite also holds true, such
that when prices of commodities in consideration tends to decrease, the corresponding
quantities being supplied also tends to decrease.” These observations though, only hold
true when all other things are held constant (ceteris paribus).

Profit Motive – the driving force behind the behavior of the law of supply. No producer
or supplier (in some cases the term seller is used) in his right mind would offer his or her
goods without a corresponding economic benefit.

Non-Price Determinants in Supply – these are the factors that usually affect the
available supply of products in the market besides price.

- Competition (number of sellers)

- Technology
- Cost of inputs
- Producers’ expectations of future prices
- Legal Provisions (tax laws, deregulation laws, etc)
- Other factors (natural phenomena – e.g. weather conditions, earthquakes,
typhoons, seasons, profitability of other goods that may be produced- e.g.
agricultural crops, livestock)

EQUILIBRIUM ANALYSIS

Microeconomics consists of two (2) parties: Buyers (consumers) and Sellers ( producers
and suppliers)
Transactions – the dynamic interplay of the market bet. suppliers and buyers
Demand and Supply analysis is also referred to as equilibrium analysis since it involves
supply and demand equations.
Gap – in equilibrium analysis, this refers to the difference between two quantities, in
economics, is the difference bet. the quantity supplied and quantity demanded given the
same price.

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Supply gap (Shortage) – condition where the quantity being demanded is greater than
being supplied. It is supply that is lacking.
Demand gap (Surplus) – condition where greater quantity is being supplied, but a lower
quantity being demanded. It is demand that is lacking to satisfy the current supply.
Market clearing price – this is the equilibrium price, it is where both the concerns of the
buyer and seller are solved: the equilibrium price allows all buyers to satisfy their desired
quantities being demanded while all the sellers achieve their desired profit or volume of
sales. The market is literally being cleared.
Natural tendency to equilibrium – means when price is lower or higher than the
equilibrium price, in the long-run this price would tend to settle down or rebound to
equilibrium price.
Equilibrium price – the price acceptable to both buyers and sellers in the market.
Equilibrium quantity – the resulting volume of sales at the equilibrium price.
Equilibrium point – the coordinates/combination (equilibrium price, equilibrium
quantity).

MARKET STRUCTURES

1. Perfect competition
2. Monopoly
3. Oligopoly
4. Monopolistic competition
5. Monopsony
6. Oligopsony

Perfect competition – occurs when market a large number of sellers or producers of a

good are present in the market, making the goods almost always available. There are so
many firms that none of them can individually affect the price of the product. This is the
more common market in economies today.
Homogenous of standardized products – products that have similar characteristics and
each one does not significantly differ from the other products, most of the time does not
carry individual brands.
Monopoly – a single firm produces the entire available products in an industry, and the
market is dominated by that firm. This is a special case of imperfect competition. The
firm has great influence over price of the product and output decisions, very rare in
economies today.
Natural Monopoly - arises in a market due to being a sole producer with technical
advantages, such as economies of scale (lower cost at greater production)
Legislated Monopoly – is created by government legislation to cover patents, licensing,
franchising provisions, or regulations on the rich. Only one firm is allowed to produced
and market a commodity in specific regional market.
Oligopoly – market structure characterized by very few sellers in the market making the
product available for the consuming public. Their price influence is great, Regulation is
often necessary due to natural tendency to collusion among these firms.

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Cartel – cooperation of companies in an oligopoly to achieve a joint-monopolistic
solution to restrict individual and collective output. Cartel is punishable by law in the
Phils.
Monopolistic Competition – a market structure where there are enough sellers or
producers and that each acts independently of the others, but are few enough that each
tends to have a “monopoly” of its own specific target market segments.
Differentiated products – are those products that tend to be similar in nature and
purpose, but are used differently and are generally preferred by specific groups of
consumers. Ex. Shampoo, soaps, cleansers, milk, etc, commodities tend to have their won
patron, making companies to have a “monopoly over these segment of the market.
Monopsony – very similar to monopoly, except that instead of having a single seller,
there is a single buyer in the industry. Ex. The government – arms, nukes
Oligopsony – very similar to oligopoly, except that instead of having few sellers in the
industry, there are only few buyers of a particular product. Usually there exist a mutually
beneficial relationship bet. oligopolists and oligopsonist. Ex. Transport and airlines
industries.

Legal Forms of Organizations

Sole proprietorship
Partnership
Corporation
Cooperatives