SUPPLY

• Quantity supplied is the amount of a good that

sellers are willing and able to sell.
• Law of Supply
– The law of supply states that, other things equal,
the quantity supplied of a good rises when the
price of the good rises.
The Supply Curve: The Relationship between
Price and Quantity Supplied

• Supply Schedule
– The supply schedule is a table that shows the
relationship between the price of the good and
the quantity supplied.
The Supply Curve: The Relationship between Price
and Quantity Supplied

• Supply Curve
– The supply curve is the graph of the
relationship between the price of a good
and the quantity supplied.
Figure 5 Supply Schedule and Supply Curve

Price Price Quantity supplied

0.00 0
3.00 1.00 1

2.50 1.50 2
1. An
increase 2.00 3
in price ... 2.00 2.50 4
3.00 5
1.50

1.00

0.50

0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity

2. ... increases quantity of supplied.

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Market Supply versus Individual Supply

• Market supply refers to the sum of all

individual supplies for all sellers of a particular
good or service.
• Graphically, individual supply curves are
summed horizontally to obtain the market
supply curve.
Shifts in the Supply Curve

• Change in Quantity Supplied

– Movement along the supply curve.
– Caused by a change in anything that alters the
quantity supplied at each price.
 Change in Quantity Supplied
Price
S
C
3.00
A rise in the price
results in a
movement along
the supply curve.
A
1.00

Quantity
0 1 5
Shifts in the Supply Curve

• Change in Supply
– A shift in the supply curve, either to the left or right.
– Caused by a change in a determinant other than
price.
» Input prices
» Technology
» Taxes & subsidies
» Expectations
» Price of other goods
» Number of sellers
 Shifts in the Supply Curve

Price
Supply curve, S3
Supply
curve, S1
Supply
Decrease curve, S 2
in supply

Increase
in supply

0 Quantity
 Variables That Influence Sellers

Variable Result

Price Movement along the

supply curve

Input prices Shifts the supply curve

Technology Shifts the supply curve

Expectations Shifts the supply curve

Number of sellers Shifts the supply curve

 SUPPLY AND DEMAND TOGETHER
• Equilibrium refers to a situation in which the
price has reached the level where quantity
supplied equals quantity demanded.
 SUPPLY AND DEMAND TOGETHER
• Equilibrium Price
– The price that balances quantity supplied and
quantity demanded.
– On a graph, it is the price at which the supply and
demand curves intersect.
• Equilibrium Quantity
– The quantity supplied and the quantity demanded
at the equilibrium price.
– On a graph it is the quantity at which the supply and
demand curves intersect.
SUPPLY AND DEMAND TOGETHER
Demand Supply
Schedule Schedule

At $2.00, the quantity demanded is

equal to the quantity supplied!
 Figure 8 The Equilibrium of Supply and Demand

Price of
Ice-Cream
Cone Supply

Equilibrium price Equilibrium

$2.00

Equilibrium Demand
quantity

0 1 2 3 4 5 6 7 8 9 10 11 12 13
Quantity of Ice-Cream Cones
Copyright©2003 Southwestern/Thomson Learning
Figure 9 Markets Not in Equilibrium

(a) Excess Supply

Price of
Ice-Cream Supply
Cone Surplus
$2.50

2.00

Demand

0 4 7 10 Quantity of
Quantity Quantity Ice-Cream
demanded supplied Cones

Copyright©2003 Southwestern/Thomson Learning

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.
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

(b) Excess Demand

Price of
Ice-Cream Supply
Cone

$2.00

1.50
Shortage

Demand

0 4 7 10 Quantity of
Quantity Quantity Ice-Cream
supplied demanded Cones

Copyright©2003 Southwestern/Thomson Learning

Equilibrium

• Law of supply and demand

– The claim that the price of any good adjusts to
bring the quantity supplied and the quantity
demanded for that good into balance.
Three Steps to Analyzing Changes in Equilibrium

• Decide whether the event shifts the supply or

demand curve (or both).
• Decide whether the curve(s) shift(s) to the left
or to the right.
• Use the supply-and-demand diagram to see
how the shift affects equilibrium price and
quantity.
 A Change in Market Equilibrium Due to
Shift in Demand
• How does high temperature affect the
ice-cream market during summer???
– The demand curve is changed, supply curve
in unchanged
– Demand curve shifts to the right
– Increase in demand raises the equilibrium
price and quantity
 Figure 10 How an Increase in Demand Affects the Equilibrium

Price of
Ice-Cream 1. Hot weather increases
Cone the demand for ice cream . . .

Supply

$2.50 New equilibrium

2.00
2. . . . resulting Initial
in a higher
equilibrium
price . . .
D

0 7 10 Quantity of
3. . . . and a higher Ice-Cream Cones
quantity sold.
Copyright©2003 Southwestern/Thomson Learning
 A Change in Market Equilibrium Due to
Shift in Supply
• A hurricane during summer>destroys part
of the sugarcane crops>rises price of sugar
– supply curve is changed, demand curve in
unchanged
– supply curve shifts to the left
– excess demand> rise in price> fall in
quantity of ice-cream sold
 Figure 11 How a Decrease in Supply Affects the Equilibrium

Price of
Ice-Cream 1. An increase in the
Cone price of sugar reduces
the supply of ice cream. . .
S2
S1

New
$2.50 equilibrium

2.00 Initial equilibrium

2. . . . resulting
in a higher
price of ice
cream . . . Demand

0 4 7 Quantity of
3. . . . and a lower Ice-Cream Cones
quantity sold.
Copyright©2003 Southwestern/Thomson Learning
Analyzing Changes in Equilibrium: Shifts in Both
Supply & Demand

• What might happen if heat wave and

hurricane occur during the same summer?
– Demand for ice-cream increases substantially
and supply of sugar falls by little
– Demand for ice-cream rises little and supply
of sugar falls substantially
Table 4 What Happens to Price and Quantity When
Supply or Demand Shifts?
Reference:
N. Gregory Mankiw (2013): Principles of Microeconomics 6th
Edition.
Thanks for your
attention!!!