What is a Supply Curve?
discourage sellers from increasing
- A schedule showing a direct or
positive relationship between the
price of the commodity and the
level of output that the seller is
willing to supply at a given in time
ceteris paribus.
- As the price of the commodity
increases, there will be more
sellers that will be willing to supply
the good.
 If price goes up, quantity supplied goes
up; if price goes down quantity supplied
goes down.
Other Factors Affecting Supply of a Commodity
Price of Production Inputs
- The production of any commodity
will require the use of 2 major
inputs – intermediate inputs or
raw materials and factor inputs
(land, labor, capital and
entrepreneurship)
- When the price of production
inputs increases, there will be an
increase in the cost of production
and sellers will be reluctant to
maintain their previous level of
supply.
Taxes
- An increase in sales tax, real estate
tac and other business taxes can
increase the cost of supply a
commodity which will in turn
their supply.
Technology
- Labor-intensive is used if the cost
of labor is relatively cheap; Capital-
intensive technology is used if
wages are high.
- Improvements in technology can
lower production cost and
encourage firms to supply more.
Expectation
- If there is an expectation that the
price of rice will increase next
season, this will encourage farmers
to plant more rice now in
anticipation of higher price in the
future.
- This expectation can also
discourage rice dealers to sell rice
currently and some of them will
keep a higher inventory of rice
currently so they can sell it in the
future with higher returns.
Why is the Supply Curve Upward Sloping?
 Variations in the unit cost of production
Producer Cost of Production
A 5 per unit
B 7 per unit
C 10 per unit
D 13 per unit
E 15 per unit
- Who can supply the good, if the
market price is 6? Producer A only.
- If the market price is 16? All the
producer
- The previously ineffective
producers at lower prices have
 become more efficient and
competitive as the price of the
commodity increases.
Principle of Diminishing Marginal Productivity
and Increasing Marginal Costs
 A fixed factor input (capital, land) is mixed
with a variable factor input (labor), the
employment of additional labor will
increase the total production but at a
decreasing rate.
 As the firm employs additional inputs, it
also increases its total cost of production.
Since each additional variable input is less
productive than the previous ones, they
become costlier to employ (increasing
marginal costs with the increase in output
production).
 Profit – difference between total revenue
and total costs
 Maximum Profit – attained when the
difference between total revenue and total
costs is the widest or marginal revenue is
equal to marginal costs (marginal profits is
zero).
*As long as marginal profit is positive, there is
motivation to increase production as this will
profit.
Changes in the Supply Curve
1. Movement along the supply curve
- Change in the price of the
commodity
- An increase in the price of the
commodity will increase the
quantity supplied as shown by
movement northeast along the
supply curve and vice versa.
2. Shift in the supply curve
- Changes in other factors affecting
except the price of commodity
- A positive effect will shift the
supply curve to the right (increase
in the supply of a commodity)
- A negative effect will shift the
supply curve to the left (decrease
in the supply of the commodity)
DETERMINATION OF THE PRICES OF
COMMODITIES
A. Equilibrium Price
- When the buyers and sellers
transact in the market and they
agree on the price of the
commodity and the amount to be
sold and bought.
B. Disequilibrium
- Cases when there are
disagreements among buyers and
sellers on the price and quantity
(excess demand and excess supply)
Market Equilibrium – refers to a price at
which both parties producers and
consumers to exchange.
OTHER APPLICATIONS OF SUPPLY AND
DEMAND ANALYSIS
o Price Ceiling - Government imposed
price control (prices cannot go higher
than the mandated price ceiling)
o Price Floor – Government imposed
price control (prices cannot go lower
than the mandated price floor)
o Applications in the Labor Market –
Also known as the JOB MARKET. It
refers to the supply of and demand for
labor. The laborers are the ones
supplying the labor services and to
them, the wage rate is the opportunity
cost of leisure.
o Minimum Wages as Price Floor – If the
equilibrium price is considered too low
by the laborers, they may demand the
 government to impose a minimum
wage.
o Application in the Foreign Exchange
Market
– Demand for USD is influenced by
demand for imports. At higher USD
price, imports becomes expensive and
our demand for USD decreases.
– Supply of USD is based on the inflows
of USD brought by exports and
remittances. At higher USD price, it
motivates exporters and Filipinos to
work overseas.
Foreign Exchange Market – the global
market place that determines the
exchange rate for currencies around
the world.
o Labor Migration and the OFWs
- Supply of OFWs increases when
foreign wage rate increases or
when the exchange rate increases
even if the foreign wage rate does
not change
- Demand for OFWs increase when
foreign wage rate decreases
- Even at lower foreign wage rate,
there will be more OFWs willing to
go abroad because the peso value
of their foreign wage is still high
with the depreciated peso.
o Determination of Rent
- Rent refers to the price of using
land in the process of production
- Low demand of land D0 = idle
- High demand of land D1 =
agriculture
- Very high demand of land D2 =
business, high rises and
condominiums