SUPPLY

( red words : don’t read)

What (definition) :
Supply refers to the quantity of a good or service that a firm is willing
and able to produce and sell at various prices over a certain period of time
- Supply comes from the behavior of sellers
- The supply function is the relation between the quantity Q of a good that
producers plan to bring to the market and the price P of the good

How :
- It decides the price and the quantity : as the price rises, so does the
supply. An increase in price leads to an increase in the quantity supplied
and vice versa. This theory call The Law of Supply.
- The law of supply represented by a supply curve
- As you can see, the slope of the supply curve is upward, which means
that as the price of a good increases, the quantity supplied of that good
also increases.
- The equation of this is : P = aQ+b
(with slope a>0, intercept b>0)
Note : when the market price is equal to b, the supply is 0

The law of supply is an important concept in both microeconomics and

macroeconomics, and helps to explain how market prices are determined
and how they respond to changes in market conditions.

What for (applications) :

- In microeconomics we are concerned with the interaction of supply and
demand. The graph below indicates typical supply and demand curves
sketched on the same diagram.
- Of particular significance is the point of intersection. At this point the
market is in equilibrium because the quantity supplied exactly matches
the quantity demanded.
- The corresponding price (Po) and quantity (Qo) are called the
equilibrium price and quantity. In practice, it is often the deviation of the
market price away from the equilibrium price that is of most interest.
- Suppose that the market price (P")exceeds the equilibrium price (Po).
From the graph below, the quantity supplied (Qs) is greater than the
quantity demanded, Qd) so there is excess supply. There are stocks of
unsold goods, which tend to depress prices and cause firms to cut back
production. The effect is for 'market forces' to shift the market back
- (ghi them : equilibrium dong vai tro dinh gia hang hoa cua thi truong
cho can doi)
Examples :
1.

2.

( huong dan cach giai)