Supply Analysis

The Concept of Supply. . .

Quantity Supplied P
refers to the amount
(quantity) of a good
that sellers are willing
to make available for
sale at alternative
prices for a given
period.
Q
 Law of Supply
The law of supply says the quantity
supplied and price of the commodity
are positively related, ceteris paribus.
Higher quantity will be supplied at
higher prices and lower quantity can
be supplied at lower prices.
Individual Supply Schedule
Ben’s Store: Ice Cream Cones
Price Per Daily
Cone Quantity
(P) (Q)

$3.00 5
$2.50 4
$2.00 3
$1.50 2
 Individual Supply Curve
P Ben’s Store: Ice Cream Cones
Price
Per
Cone
$2.50
$2.00
$1.50

2 3 4
Q # Cones Per Day
 Market Supply Schedule
 Market supply is the sum of all individual
supplies at each possible price.
 Assume the ice cream market has two
firms as follows:
Price Per Cone Ben’s Jerry’s IceMart Market Supply

$0.50 0 + 0 = 0
$1.00 1 + 0 = 1
$1.50 2 + 2 = 4
$2.00 3 + 4 = 7
 Market Supply Curve
P All Sellers
Price
Per
Cone
$2.00
$1.50
$1.00

1 4 7
Q # Cones Per Day
 Determinants of Supply
Product’s Own Price
Input Prices
Technology
Expectations
Number of Producers
 Determinant of Supply:
Market Price
Law of Supply P
There exists a
direct (positive)
relationship
between Price
and Quantity
Supplied.
Q
 Change in Quantity Supplied
vs. Change in Supply
Change in Quantity Supplied
Movement along the supply curve.
Caused by a change in the Price
of the product.
Change in Supply
A shift in the supply curve, either to
the left or right. Caused by changes in
Non-Price Factors
 Changes in Quantity Supplied
Price

$2.00

Quantity

3
 Changes in Quantity Supplied
Price

$2.00

$1.00

Quantity

1 3
 Changes in Quantity Supplied
Price
Caused by
a change
$2.00 in Price

$1.00

Quantity

1 3
 Change in Supply
Price

$2.00

Quantity

3
 Change in Supply
Price

$2.00

Quantity

3 6
 Change in Supply
Price
Caused by
Non-Price
$2.00
Factors:
Technology,
Input Prices

3 6 Quantity
 Supply and Demand Together
Equilibrium Price
The price at which the supply and demand
curve intersect. Quantity Supplied and
Quantity Demanded are equal.
Equilibrium Quantity
The quantity at which the supply and
demand curve intersect.
 Forces of Demand. . .

Price

Quantity
 Forces of Demand and Supply. . .

Price

Quantity
Forces of Demand and Supply At Rest
Market Equilibrium
Price

$2.00

Quantity

7
Actions of buyers and sellers that move
toward equilibrium
Excess Supply
Price is above equilibrium price, therefore
producers are unable to sell all they want
at the going price.
Excess Demand
Price is below equilibrium price, therefore
consumers are unable to buy all they
want at the going price.
Actions of buyers and sellers that move
toward equilibrium
Price

$2.50

$2.00

Quantity
4 10
Actions of buyers and sellers that move
toward equilibrium
Price Excess Supply = 6 cones

$2.50

$2.00

Quantity
4 7 10
Actions of buyers and sellers that move
toward equilibrium
Price

$2.00

$1.50
Quantity
4 7 10
Actions of buyers and sellers that move
toward equilibrium
Price

Excess
$2.00 Demand
$1.50 =6 cones
Quantity
4 7 10
 Concluding Thoughts. . .
Market economies harness the forces
of supply and demand. . .
Supply and Demand together
determine the prices of the economy’s
different goods and services. . .
Prices in turn are the signals that
guide the allocation of resources.
 Elasticity of Supply
 Elasticity of supply of a commodity is defined as the responsiveness
of a quantity supplied to a unit change in price of that commodity.

 ΔQs / Qs
 Es = ------------
ΔP / P
ΔQs = change in quantity supplied
Qs = quantity supplied
ΔP = change in price
P = price
 Kinds Of Supply Elasticity

 Price elasticity of supply: Price elasticity of supply

measures the responsiveness of changes in quantity
supplied to a change in price.
 Perfectly inelastic: If there is no response in supply to a
change in price. (Es = 0)
 Inelastic supply: The proportionate change in supply is
less than the change in price (Es =0-1)

 Unitary elastic: The percentage change in quantity

supplied equals the change in price (Es=1)
Elastic:The change in quantity
supplied is more than the change in
price(Ex= 1- ∞)
Perfectly elastic: Suppliers are willing
to supply any amount at a given price
(Es=∞)