Society, Economics and Politics 3

 Supply

-The law of supply explains in a simplified way the drivers of production.

-Price is a major determinant in the Quantity supplied (with all other factors held constant)

Means: Study:

Relation between
If a company supplies a good: the quantity supplied
+ price of the good
o Has the resources and technology to
produce it (producers are studied)
o Can profit from producing it
o Plans to produce and sell it How many products the company is
going to produce

-Inner Variables: Price (P) and Quantity (Q)

-Outers Variables: price of resources, substitute goods, future prices, other
companies, technology

Inner variables (P,Q) determine movement along the curve

 p2

q1
(In economics the XY axis are shifted by convention)

Supply = Price + Quantity

Supply = Price + Quantity

What changes supply?

 Price of resources that Sony needs to produce the DVD’s
 Price of substitution goods
 Expected future prices future P today’s S
 Number of suppliers other companies
 Technology

Effect on the price of DVD players + Quantity of DVD players sold:

- Supply of DVD players increase P + Q
- Salary of DVD player workers P +Q
- Salaries + Price of DVD P +Q
P +Q P +Q

 Equilibrium
-Demanded Q+P meets Q+P of goods supplied
-It is the match point of demand + supply of the –market

4 individual moves
Demand 1. E1 = QD + PD
but QS + PS constant

Demand 2. E2 = QD + PD
but QS + PS constant

Supply 3. E3 = QS + PS
but QD + PD constant

Supply 4. E4 = QS + PS
but QD + PD constant

The optimal point is determined by the intersection

between consumer and supplier needs for an specific
good.
Better explained in the equation:
a + (bP) = a - (bP)
Supply = Demand
This aproach generates a real quantity wich will be
autoregulated by market needs by shifts in one or
both of the curves

 Elasticity
-Measures the sensibility between sold and bought quantities to a certain price.
-When prices change exchanged quantities will also change, but sometimes they
don’t change in the same proportion this proportions are elasticity.

4 principal elasticities
1. Neutral

P
10
9
8
7
6
5
4
3
2
1

1 2 3 4 5 6 7 8 9 10
Q

2. Elastic

P
10
9
8
7
6
5
4
3
2
1

1 2 3 4 5 6 7 8 9 10
Q
 3. Completely Elastic

4. Inelastic

P
10
9
8
7
6
5
4
3
1 2

1 2 3 4 5 6 7 8 9 10
Q

5. Completly inelastic

P
10
9
8
7
6
5
4
3
1 2

1 2 3 4 5 6 7 8 9 10
Q

 Market Distortions
-Minimum prices
-Maximum prices
-Taxes

S1

S1

S2