CH 4 - Supply

Pg. 129

The quantity of goods or services that firms are willing and able to sell at any given price, per
time period. The businesses are the ones who decide this quantity.

Law of supply:

States that there is a positive correlation between the quantity supplied of a product and its
price, ceteris paribus. This means that if the price increases, the quantity supplied does as
well and vice versa. The law of supply only holds if price changes while all other factors
affecting supply remains unchanged. The opposite exists if price falls. In other words, there is
less quantity supplied when price falls because profit margins fall.

Why does this happen?

● When the price goes up, people who make or sell those things want to make or sell
more of them to make more money. And that's why there is a positive relationship
between price and quantity supplied.
● Existing firms in the market can earn higher profit margins if they supply more when
the price increases. Hence, higher prices create an incentive for existing firms to
supply more.
● New firms enter the market, attracted by the higher prices and profit margins, which
enable them to cover their costs of production and the potential to earn profits.
The supply curve:

The supply curve for a product is shown diagrammatically by an upward sloping linear line.
The price (P) is located on the y axis (vertical) and the quantity supplied (Qs) is located on the
x axis, horizontal.

We can see that the slope

is positive and as the price
increases the quantity
does as well. Showing the
direct correlation between
those two variables.

Relationship between an individual producer’s supply and

market supply:

Individual producers supply: Lo que está antes

Market supply (Sm): curve refers to the sum of all individual supplies of a product at each
price level. La suma de los individual supplies. It is found by adding up all individual supply
of producers at each price level.

Example: if the market price of organic grapes is $10 per kilogram and Firm 1 is able and
willing to supply 200 kilograms while Firm 2 supplies 300 kilograms, the market supply (Sm)
is then 500 kilograms of organic grapes per time period.

200 + 300 = 500 kilograms is the market supply.

The market supply (Sm)changes in quantity (200 + 300 = 500) but does not change in price.
In the example the price is always 10 dollars. How much both firms can supply when the price
is 10 dollars.

Notice that the line is more straight (esto aun no lo entiendo muy bien así que pongo lo que
encontré) la curva de oferta del mercado se vuelve más plana porque a medida que aumenta
el precio de la limonada, más proveedores como tú pueden producir más limonada para
vender a un precio más alto. Sin embargo, si todavía es difícil para los proveedores aumentar
su producción incluso con precios más altos, la curva de oferta del mercado seguiría siendo
empinada. YA ENTENDI JAJAJA

Flatter line: Aumenta él precio y los proveedores pueden aumentar su producción con
facilidad y venderla a un precio más alto.

Steep line (empinada): Es difícil para los proveedores aumentar su producción incluso con
los precios altos.
Movements of the demand curve: Non - Price
determinants

Price is regarded as the key determinant of the level of supply for a good or service, it is not
the only factor that affects the quantity supplied of a product. Non-price determinants of
supply are the various factors other than the price of a good or service that affect the supply
of the product. These factors change the supply (shift the supply curve) of a good or service.

CITERN: Costs of production of factors of production; Indirect taxes and subsidies;

Technological change; Expectations of future prices; prices of Related products (joint
supply or competitive supply); and the Number of firms in the industry.

Changes in costs of factors of production:

Any change in the costs of production or a change in the costs of factors of production (FOPs)
will shift the supply curve of the product being considered.

If it increases: the supply curve will shift to the left (leftwards, inwards), ceteris paribus.
Why? This is because the higher costs of production mean that existing firms cannot
produce the same quantity as before and fewer firms are willing and able to supply output.
If it decreases: The supply curve would shift to the right (rightwards, outwards)

Prices of related goods – joint and competitive supply

The price of related goods also affects an individual producer’s supply. Some products are in
competitive supply while others may be in joint supply.

Competitive supply:

Uno baja y el otro sube, inverse correlation

The output of one product (such as apples) prevents or limits the output of alternative
products (such as oranges). This is due to competing resources, as producers have limited
resources such as land and labor, so cannot supply more of one product without
producing less of the other.

The relative price and profitability of the two products determines the level of supply for each
product. For example, if the price of apples increases by 10 per cent while the price of oranges
remains the same, farmers may allocate more land and other resources to harvesting apples
than oranges. Hence, the increase in the price of apples reduces the supply of oranges,
ceteris paribus

Interpretemossss:

1) The demand for apples has increased as well as the price of apples has.
2) Thai increased the quantity of apples from Q1 to Q2
 3) The higher price and larger supply of apples caused a leftwards shift on the orange
supply curve, because this and other producers are going to switch to sell more
apples than oranges because their price and demand has increased.

Joint supply:

Uno sube y él otro sube, uno baja y él otro baja

An increase in the production of one product automatically increases the supply of at least
another (joint) product. The less important product in joint supply is called the by-product,
such as mutton being the main product from sheep and the by-products being wool, milk
and cheese.

Example: if the supply of chickens drops dramatically, the supply of chicken eggs would
also fall sharply. Less chicken, less chicken eggs simple :)

Interpretation timeeeee:

1) The demand for cow beef has increased D1 to D2 (outwards shift) , which led to a price
increase as well from P1 to P2.
2) Lead to a expansion in the supply for cows (de donde viene la carne están
relacionados)
3) The quantity of cows has increased, the supply of milk does it as well, outwards shift
in the supply curve
Indirect taxes and subsidies:

Indirect taxes are government levies or charges on expenditure, rather than on incomes. So,
that's what indirect taxes are, kids! It's like a little bit of extra money you have to pay when
you buy something at the store, because the government wants to use that money to make
things better for everyone. They are imposed on goods and services, so inevitably increase the
price paid by customers.

The indirect taxes reduce the profitability of firms, so tend to reduce market supply. This is
illustrated by an inwards (leftwards) shift of the supply curve at each price level.

Subsides: form of financial assistance from the government to help encourage output or
supply, by reducing the costs of production.

Hence, subsidies shift the supply curve of a product to the right at each price level.

Future price expectations:

When prices for a product are high, producers are more likely to make more of that product
because they will make more money. Conversely, if prices are low, producers may reduce the
amount they produce because they will make less money. If producers think that prices will
go up in the future, they may make more of the product now so they can sell it at a higher
price. On the other hand, if they think prices will go down in the future, they may make less
of the product now so they don't end up with a lot of unsold goods.

Changes in technology:
advances in technology can increase the amount of goods and services that can be
produced and sold, even if prices stay the same. This is because technology makes it easier
and cheaper to make things, so companies can produce more of them. For example, online
stores can sell their products to people all over the world without needing a physical store,
which can save them money on rent and labor costs. This can make it easier for businesses
to sell more products, and can make it easier for people to buy things they want.
Number of firms:

The number of companies that produce a certain product is usually determined by how
big the market is for that product. If the market for a product grows, more companies are
likely to start making it. For example, there are more publishers that make IB History or IB
Mathematics textbooks than IB Geography or IB Philosophy textbooks, because more
students take these popular or required courses. If more companies start making a product,
the supply of that product will increase and the supply curve will shift to the right.
Conversely, if the market for a product shrinks, fewer companies will make it. For example,
fewer companies make CDs, DVDs, newspapers, and diesel cars because these products are
becoming less popular.
Movements along the demand curve: