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Supply
Supply
Supply
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No
reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Supply
2
Supply
The law of supply states that the quantity of a good
supplied is directly related to the good’s price.
In other words, other things equal:
• Quantity supplied rises as price rises.
• Quantity supplied falls as price falls.
The law of supply occurs because:
• When prices rise, firms substitute production of one
good for another.
• Assuming a firm’s costs are constant, a higher price
means higher profit.
© 2020 McGraw-Hill Education. 3
The Supply Curve
A supply curve is the graphic representation of the
relationship between price and quantity supplied.
Supply
Price and quantity
supplied vary directly.
P1
The supply curve is
P0 upward sloping.
As price increases,
quantity supplied
Q increases.
Q0 Q1
© 2020 McGraw-Hill Education. 4
Quantity Supplied
Quantity supplied refers to a specific amount that will
be supplied per unit of time at a specific price, other
things constant.
It refers to a specific point on the supply curve.
A change in price changes quantity supplied.
A change in price causes a change in quantity supplied.
A change in price causes a movement along the supply
curve.
Supply
C
$80
B
$50
Q
4.1 4.3
© 2020 McGraw-Hill Education. 7
Shift in Supply
A change in a shift factor causes a shift in supply.
P
S0
S1
Q
© 2020 McGraw-Hill Education. 8
Factors in Supply Shift
Important shift factors of supply include:
1. Price of inputs
2. Technology
4. Expectations
6. Particular factors
© 2020 McGraw-Hill Education. 9
1. Price of inputs:
Profit = TR - TC
Total revenue = P of output x Q output
TC = total cost = Q inputs x P of inputs
Increase in p of inputs shifts the S curve to the left or up.
Increase in cost of production shifts S to the left.
P0----------------------- S0
Q Q
Sports cars Family car
11
Complements in production
Meat q1 leather q0 q1
Increase in meat prices increases the quantity
supplied
© 2020 McGraw-Hill Education. 12
4. Expectations
Positive expectations about prices, profits, sales = shifts in
Supply to the right
13
Market Supply: Price per Movie
Price
+ Barry’s + Charlie’s = Market
supply supply supply
(per movie) Ann’s Supply
$1.00 1 0 0 1
$3.00 3 2 0 5
$5.00 5 4 0 9
$7.00 7 5 2 14
P
CHARLIE BARRY ANN
$7.00
$5.00