Lecture3
- 1. Lecture #3 Law of Supply, Determinants of Supply, Change in Supply and Change in Quantity Supply
- 2. • Supply • Law of Supply Supply Schedule Supply curve • Determinants of Supply • Change in Supply • Change in Quantity Supply • Change in Supply vs. Change in Quantity Supply remember you and I are here “to learn from each other” Contents….
- 3. Supply • Supply is schedule or a curve that shows the amounts of product that producers are willing and able to make available for sale at each of series of possible prices during specified period of time.
- 4. Law of Supply • It states that other things constant, when price of a commodity rises, the quantity supply for that commodity rises and when price of a commodity falls, the quantity supply for that commodity falls. “Supply for a product is positively related to its price”. 4SUPPLY AND DEMAND
- 5. Supply Schedule Supply Curve Supply schedule is a table showing the relationship between price and quantity supply of commodity. Supply curve is the graphical representation of the supply schedule; it shows how much of a good or service producer want to sell at any given price. Positive relationship between price and demand Price # Qs # Price $ Qs $ PriceofCoke Quantity Supply of Coke Price of Coke Quantity Supply of coke 5 2 10 4 15 6 10 5 15 2 4 6
- 6. Determinants of Supply • Resource prices • Technology • Taxes and Subsidies • Number of sellers • Price expectations Any change in these determinants causes shift in supply curve.
- 7. Shifts in the Supply Curve Supply will shift right if – Raw materials or labor becomes cheaper – The technology becomes more efficient – Number of sellers increases – Lower expected prices – Decrease in taxes – Increase in subsidies Supply will shift left in opposite situation.
- 8. Shifts in the Supply Curve Price Quantity Supply0 Increase in supply Decrease in supply Supply curve, S 3 curve, Supply S 1 Supply curve, S 2
- 9. Change in Quantity Supply Change in quantity Supply is movement from one point to another from one price combination to another on a fixed supply curve. An increase in quantity supply is represented by expansion in supply curve while a decrease in quantity supply is represented by contraction in supply curve. Expansion Contraction
- 10. Change in Supply Vs. Change in Quantity Supplied Change in price of a good or service leads to Change in quantity supplied (Movement along the curve). Change in other factors leads to Change in supply (Shift of curve). A change in supply is not the same as a change in quantity supplied.