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Supply Schedule

REVIEW NOTES
1.0 Supply

1.1 Supply is the supplier’s side of the market. Sellers are mainly motivated by profit.
1.2 Supply is a schedule of the amounts of a good or service that producers are
willing and able to offer to the market at various prices during a specified period
of time.
1.3 The law of supply states that the price of a product and the quantity supplied are
directly (positively) related; i.e., the lower the price, the lower the quantity
supplied. This explains the upward line in the supply graph.
1.4 Also, in the short run, the price of the product and the quantity supplied are
positively related because of the law of diminishing returns.
1.5 The determinants of supply are the variables that affect the amount supplied
(Hint: 3Ps, 2Ts, 1S):
5.5.1 P roduction prices
5.5.2 P rices of other goods
5.5.3 P rices expectations
5.5.4 T echnology
5.5.5 T axes
5.5.6 S ubsidies
1.6 The supply schedule is a relationship between the price of a good (on the vertical
axis) and the quantity supplied to the market (horizontal axis) at each price,
holding other determinants of the quantity supplied constant. A change in the
price of a commodity is represented as a movement along the supply schedule.
1.7 Supply curve shift. A change in the quantity supplied must be distinguished from
a shift in the supply curve itself. The latter is caused by a change in one of the
determinants.
1.8 The following graph illustrates an increase in supply, which shifts the line from S
to S1.

Supply Curve Shift

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MS MICROECONOMICS. Supply Schedule

Price

S S1

Quantity Supplied

1.8.1 An increase in supply for commodity X (a shift in the supply schedule to

the right) can be caused by changes in the following determinants.
 A decrease in a factor of the production price
 An improvement in technology
 A decrease in the demand for another commodity (Y), inducing firms to
divert resources from the production of Y to X
 The expectation of future price decreases
 A decrease in taxation of a good or an increase in subsidization
1.8.2 A decrease in supply can be caused by the opposite of the above
determinants.
1.8.3 In the short run, certain costs are fixed regardless of output. Given that
fixed costs are incurred even if the firm shuts down, the firm gains in the
short run by continuing to operate if revenues exceed variable costs.
Accordingly, the firm’s short-run supply curve is derived from the
marginal cost curve (the firm produces until MR = MC). It consists of the
part of the marginal cost curve of the marginal cost curve above the
average variable cost curve.
1.9 Market supply is the sum of the individual supply curves of all sellers in the
market.
1.10 Price elasticity of supply (Es) is the responsiveness of a change in the quantity
supplied to a percentage change in the price in the commodity.

Es = % ∆ in qty. supplied = ℅ Δ in QS
% ∆ in price ℅ Δ in P

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 MICROECONOMICS. Supply Schedule MS
2.0 Factors that affect supply elasticity include

2.1 Cost and feasibility of storage

 EXAMPLE: A high cost of storage results in low elasticity because, as
the price of carrying a good increases, the tendency to hold that
good decreases.
2.2 Characteristics of the production process
 EXAMPLE: The supply elasticity of a joint product may be affected by
the demand for the other joint products.
2.3 Time
 EXAMPLE: Production of goods, i.e., the ability to supply them,
becomes more elastic with time.
2.4 A perfectly inelastic supply curve has an elasticity of zero. Thus, it occurs only
when a firm cannot vary the quantity it supplies. A perfectly inelastic supply curve
is depicted as a vertical line.
2.5 Economic Rent. If any input is paid a higher amount than it would receive from
the next highest bidder for that input, economic rent is said to be earned. When
economic rent is earned, an input is being paid more than is necessary to keep
the input employed in production. For example, a P5,000,000-a-year baseball
player is earning economic rent of P4,950,000 if the player could earn only
P50,000 per year in another occupation.
2.5.1 But if the supply of a resources is fixed (e.g., land), the entire price paid is
deemed to be a surplus (economic rent) because a change in price will
not affect total supply (the productive potential of the economy)

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MS MICROECONOMICS. Supply Schedule
MULTIPLE CHOICE QUESTIONS

Supply curve
1. In the short run, the supply curve in a competitive market shows a positive relationship
between price and quantity supplied because
A. Consumers will only buy more of a product at a higher price.
B. Of the law of diminishing returns.
C. As the size of a business firm increases, price must rise.
D. Increases in output imply a shift in consumer
preferences, allowing a higher price.
2. A supply curve illustrates the relationship between
A. Price and consumer tastes
B. Price and quantity demanded
C. Price and quantity supplied
D. Supply and demand

3. A perfectly inelastic supply curve in a competitive market

A. Implies a vertical demand curve
B. Implies a horizontal market supply curve
C. Exists when firms cannot vary input usage
D. Can exist only in the long run
4. When making a decision to increase the robotic automation equipment in an existing
facility, a firm takes all of the following into consideration except
A. Economies of scale.
B. Opportunity cost.
C. Technological efficiency.
D. The initial cost of the current facility.

5. The measurement that uses the factors of production as inputs in physical terms is
A. Economic efficiency.
B. Technological efficiency.
C. Opportunity cost.
D. Comparative advantage.

6. An improvement in technology that in turn leads to improved worker productivity would

most likely result in
A. A shift to the left in the supply curve and a lowering of the price of the output.
B. An increase in the price of the output if demand is unchanged.
C. A shift to the right in the supply curve and a lowering of the price of the output.
D. Wage increases.

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 MICROECONOMICS. Supply Schedule MS
7. The firm's short-run supply curve is derived from the
A. Average total cost curve
B. Fixed cost curve
C. Marginal cost curve
D. Total cost curve

8. Economic rent is the total price for land and other natural resources when there is a(n)
A. Completely elastic supply function.
B. Fixed demand schedule.
C. Completely fixed total supply.
D. Artificial market price.

9. In microeconomics, the distinguishing characteristic of the long run on the supply side is
that
A. All inputs are variable
B. Only supply factors determine price and output
C. Only demand factors determine price and output
D. Firms are not allowed to enter or exist the industry

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