chapter 4 part 2. supply quantity supplied – amount of a good that sellers are willing and able to...
TRANSCRIPT
Chapter 4 Part 2
Supply• Quantity supplied – amount of a good that
sellers are willing and able to sell
• Law of supply – the quantity supplied of a good rises as price rises
• Supply schedule – table showing relationship b/t the price and quantity supplied of a good
• Supply curve – graph of relationsip b/t P and Qs
Figure 5 Ben’s Supply Schedule and Supply Curve
Price ofIce-Cream
Cone
0
2.50
2.00
1.50
1.00
1 2 3 4 5 6 7 8 9 10 11 Quantity ofIce-Cream Cones
$3.00
12
0.50
1. Anincrease in price ...
2. ... increases quantity of cones supplied.
• Market supply – the sum of all individual suppliers in the same market
• Graphically, individual supply curves are summed horizontally to obtain the market supply curve
• Change in Qs - Caused by a change in anything that alters the quantity supplied at each price.
1 5
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones0
S
1.00A
C$3.00 A rise in the price
of ice cream cones results in a movement along the supply curve.
Change in Quantity Supplied
Shifts in the S curve – Change in Supply
• Input Prices – when the P of an input rises, the S decreases b/c it is more expensive to produce and less profitable
• Technology – advances in technology can increase the supply
• Expectations – if the firm expects prices to rise in future, may produce less now
• # of sellers – if more firms enter market, S will go up
Figure 7 Shifts in the Supply CurvePrice of
Ice-CreamCone
Quantity ofIce-Cream Cones
0
Increasein supply
Decreasein supply
Supply curve, S3
curve, Supply
S1Supply
curve, S2
S and D together• Equilibrium refers to a situation in which
the price has reached the level where quantity supplied equals quantity demanded
• Occurs where the S and D curve intersect
• Equilibrium Price – price at intersection
• Equilibrium Quantity – Q at intersection
Figure 8 The Equilibrium of Supply and Demand
Price ofIce-Cream
Cone
0 1 2 3 4 5 6 7 8 9 10 11 12Quantity of Ice-Cream Cones
13
Equilibriumquantity
Equilibrium price Equilibrium
Supply
Demand
$2.00
Markets not in Equilibrium• SURPLUS - When price > equilibrium
price, then quantity supplied > quantity demanded.
• There is excess supply or a surplus. • Suppliers will lower the price to increase
sales, thereby moving toward equilibrium.
Figure 9 Markets Not in Equilibrium
Price ofIce-Cream
Cone
0
Supply
Demand
(a) Excess Supply
Quantitydemanded
Quantitysupplied
Surplus
Quantity ofIce-Cream
Cones
4
$2.50
10
2.00
7
Markets not in Equilibrium
• SHORTAGE -When price < equilibrium price, then quantity demanded > the quantity supplied.
• There is excess demand or a shortage. • Suppliers will raise the price due to too
many buyers chasing too few goods, thereby moving toward equilibrium.
Figure 9 Markets Not in Equilibrium
Price ofIce-Cream
Cone
0 Quantity ofIce-Cream
Cones
Supply
Demand
(b) Excess Demand
Quantitysupplied
Quantitydemanded
1.50
10
$2.00
74
Shortage
Table 3: Three Steps for Analyzing Changes in Equilibrium
Figure 10 How an Increase in Demand Affects the Equilibrium
Price ofIce-Cream
Cone
0 Quantity of Ice-Cream Cones
Supply
Initialequilibrium
D
D
3. . . . and a higherquantity sold.
2. . . . resultingin a higherprice . . .
1. Hot weather increasesthe demand for ice cream . . .
2.00
7
New equilibrium$2.50
10
Figure 11 How a Decrease in Supply Affects the Equilibrium
Price ofIce-Cream
Cone
0 Quantity of Ice-Cream Cones
Demand
Newequilibrium
Initial equilibrium
S1
S2
2. . . . resultingin a higherprice of icecream . . .
1. An increase in theprice of sugar reducesthe supply of ice cream. . .
3. . . . and a lowerquantity sold.
2.00
7
$2.50
4
Table 4: What Happens to Price and Quantity When Supply or Demand Shifts?