Introduction to Supply
- Supply is the amount of a good/service that a producer is willing and able to supply at a given price in a given time period
- A supply curve is a graphical representation of the price and quantity supplied by producers
- If data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier
- If data were plotted, it would be an actual curve. Economists, however, use straight lines so as to make analysis easier
- The supply curve is sloping upward as there is a positive relationship between the price and quantity supplied (QS)
- Rational profit maximising producers would want to supply more as prices increase in order to maximise their profits
- Rational profit maximising producers would want to supply more as prices increase in order to maximise their profits
- The law of supply states that there is a positive (direct) relationship between quantity supplied and price, ceteris paribus
- When the price rises the QS rises
- When the price falls the QS falls
Individual and Market Supply
- Market supply is the combination of all the individual supply for a good/service
- It is calculated by adding up the individual supply at each price level
- It is calculated by adding up the individual supply at each price level
The Monthly Market Supply of Bread from 4 Bakeries in a Small town
Bakery 1 |
Bakery 2 |
Bakery 3 | Bakery 4 | Market Supply |
300 |
600 | 180 | 320 | 1400 loaves |
- Individual and market supply can also be represented graphically
Market supply for smart phones in December is predominantly the combination of iPhone and Samsung supply
Diagram Analysis
- In New York City, the market supply for smart phones in December is predominantly the combination of iPhone and Samsung supply
- At a price of $1000, the supply of iPhones is 300 units and the supply of Samsung phones is 320 units
- At a price of $1,000, the market supply of smart phones in New York City during December is 620 units
Movements Along a Supply Curve
- If price is the only factor that changes (ceteris paribus), there will be a change in the quantity supplied (QS)
- This change is shown by a movement along the supply curve
- This change is shown by a movement along the supply curve
A supply curve showing an extension in quantity supplied (QS) as prices increase and a contraction in quantity supplied (QS) as prices decrease
Diagram Analysis
- An increase in price from £7 to £9 leads to a movement up the supply curve from point A to B
- Due to the increase in price, the quantity supplied has increased from 10 to 14 units
- This movement is called an extension in QS
- A decrease in price from £7 to £4 leads to a movement down the supply curve from point A to C
- Due to the decrease in price, the quantity supplied has decreased from 10 to 7 units
- This movement is called a contraction in QS