FAR EASTERN UNIVERSITY HIGH SCHOOL

Accountancy, Business and Management

Nicanor Reyes Street, Sampaloc, Manila

CHAPTER 4

Lesson 4: Individual Markets: Supply Concepts

Introduction:

If demand is from the buyer’s side of the market, supply is from the seller’s (producer’s
or business firm’s) side. If the self-interest of the buyer is to maximize the satisfaction of his or
her needs and wants, that of the seller (in a market economy) is to maximize profits. At higher
prices, the seller is able and willing to sell more quantities of a good since at higher prices, he or
she expects to earn more profits.

Objective:

1. To define supply as a schedule, a curve, and a function;

2. To explain the law of supply;

3. To distinguish between quantity supplied and supply; change in quantity supplied and
change in supply; and

4. To identify the nonprice determinants of supply and understand how a change in these
determinants affects supply.

Subject Matter

Supply is a schedule or curve showing the amounts of a product that producers are willing and
able to make available for sale at each of a series of possible prices during a specific period, all
other thigs held constant.

Law of Supply states that there is a proportional or direct relationship between price and
quantity supplied, ceteris paribus.

Lesson 4: Individual Markets: Supply Concepts

 FAR EASTERN UNIVERSITY HIGH SCHOOL
Accountancy, Business and Management
Nicanor Reyes Street, Sampaloc, Manila

Supply Schedule

-is a list of the different quantities of a good that a seller is able and willing to sell at
different prices over a given period of time.

Table 4.1 Supply Schedule for Maple Syrup in the United States

The supply schedule can also be shown graphically through the supply curve.

Supply Curve

-is a graphical of the different quantities of a good that a seller is able and willing to sell
at different prices over a given period of time

Figure 4.1 Supply Schedule for Maple Syrup in the United States

Lesson 4: Individual Markets: Supply Concepts

 FAR EASTERN UNIVERSITY HIGH SCHOOL
Accountancy, Business and Management
Nicanor Reyes Street, Sampaloc, Manila

Line S is the supply curve, it is upward (positive) sloping to the right quantity supplied increases
as price increases. Again, be reminded that price, although it is the independent variable is
assigned to the Y-axis while quantity supplied, the dependent variable, is assigned to the X-axis.

A shift of the supply curve to the right means an increase in supply and a shift to the left means
a decrease in supply.

Supply can also be defined by a given supply function:

Supplied Function

- is a mathematical expression that shows the dependent relationship of quantity

supplied to price.

Given as:

Qs = -c + dP

Where:

Qs = represents the quantity supplied

P = price of a good

Nonprice Determinants of Supply

The sellers maybe willing and able to sell more or lesser at the same prices because of changes
in some other factors besides the price of good.

1. Input prices

• A fall in the price of an input

• Increase in supply: rightward shift

• An increase in the price of an input

• Decrease in supply: leftward shift

Lesson 4: Individual Markets: Supply Concepts

 FAR EASTERN UNIVERSITY HIGH SCHOOL
Accountancy, Business and Management
Nicanor Reyes Street, Sampaloc, Manila

2. Price of alternatives

• Alternate goods

• Other goods that firms in a market could produce instead of the good in
question

• Alternate market

• A market other than the one being analyzed in which the same good
could be sold

3. Technological advance in production

• A firm can produce a given level of output in a new and cheaper way than before

• Increase the supply of a good

4. Number of firms

• Increase in number of sellers

• Increase in supply

• Decrease in number of sellers

• Decrease in supply

5. Expected price

• An expectation of a future price rise

• Shifts the current supply curve leftward

• An expectation of a future price drop

• Shifts the current supply curve rightward

Lesson 4: Individual Markets: Supply Concepts

 FAR EASTERN UNIVERSITY HIGH SCHOOL
Accountancy, Business and Management
Nicanor Reyes Street, Sampaloc, Manila

6. Government Policies

• Government imposed taxes

• Decrease supply

• Government subsidiaries

• Increase supply

7. Weather and other natural events

• Favorable weather: increases crop yields

• Rightward shift of the supply curve for that crop

• Unfavorable weather: destroys crops

• Shifts the supply curve leftward

• Natural disasters

• Destroy/disrupt productive capacity

∆ Quantity Supplied versus ∆ Supply

Figure 4.2 Change in Quantity Supplied

A change in quantity supplied, just like a change in quantity demanded, is brought about by a
change in price, all other things held constant. A change in quantity supplied is illustrated
(graphically) by a movement along the given supply curve. A downward movement of points

Lesson 4: Individual Markets: Supply Concepts

 FAR EASTERN UNIVERSITY HIGH SCHOOL
Accountancy, Business and Management
Nicanor Reyes Street, Sampaloc, Manila

along the supply curve shows a decrease in quantity supplied while an upward movement
illustrates an increase in quantity supplied.

Change in Supply

Figure 4.3 Decrease in Supply Figure 4.4 Increase in Supply

Supply, on the other hand, refers to the entire supply schedule, supply curve, or supply
function.
A change in quantity supplied is a result of a change in price, holding the nonprice determinants
constant (ceteris paribus) while change in supply results from a change in one or all the
nonprice determinants of supply, holding the price of the good as constant.

Lesson 4: Individual Markets: Supply Concepts