Markets and Prices
is the amount that sellers are willing and able to sell at a particular price.
Supply as the amount of goods and services that businesses are willing and ability to
produce at different prices during a certain period of time. Supply is a record of how business's production habits change in response to price. It is a whole series of quantities that businesses will offer at the different prices levels.
Hence, a supply schedule:
4.1 Law of supply
As the price goes down, quantity supplied offered decreases.
From a business perspective, profit-seeking activities by businesses are logical. Hence, sellers will pull back from a market where prices are low. This direct relationship is called the law of upward-sloping supply.
4.2 Changes in quantity supplied
Movement along the same supply curve caused by a change in Price!
4.3 Change in supply
is a shift in the supply curve, either to left or to right. It is caused by a change in a determinant
4.4 Determinants of supply
R - Resource Price: most important and most typical reason for change
O - The price of other goods (Prices of goods that use same resources): If the price of one production substitute rises, the supply of another substitute will decrease in order to increase profits.
T - Technology: new innovations in technology can reduce the average cost of production, thus increase supply.
T - Taxes and subsidies: taxes increase costs; subsidies lower costs.
E - Producer expectations: If suppliers expect price to rise, they will wait to send their goods to market. Because the price is as yet unchanged, this is a decrease in supply, which would in turn cause price to rise. If suppliers expect price to fall, they will rush their goods to market in hopes of getting the present high price. This increases supply, which would cause price to fall.
N - The number of sellers: Other things equal, the larger the number of suppliers, the greater the market supply.
The prices at which both demand and supply curves intersect is the equilibrium price.
A market equilibrium comes at the price at which quantity demanded equals quantity supplied.If the market price is below equilibrium, the individual decisions of buyers and sellers will eventually push it upward. If the market price is above equilibrium, the opposite will tend to happen.
Depending on market conditions, immediately or in the future, price and quantity will move toward equilibrium as buyers and sellers intuitively and logically carry out the laws of demand and supply.
5.1 Changes in Supply, Demand and Equilibrium:
Demand only changes
Supply only Changes
Change in SupplyChange in DemandEffect on PeEffect on Qe