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Supply Analysis Supply Analysis

1

MICRO Economics SupplySupply

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وتحليل تجزيهعرضه

MICRO Economics TERMS TO KNOW:TERMS TO KNOW:

Meaning of supply and Stock1

Law of supply, schedule and Diagram2

Changes in supply3

MICRO Economics What is Supply?What is Supply?

Supply is the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.

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MICRO Economics

SupplySupply means the quantities of a commodity offered for sale at a given price.

StockStock means the total quantity of a commodity which a seller has with him in warehouse and has not yet brought for sale.

Supply and Stock: Supply and Stock:

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ذخيره

MICRO Economics Firm’s Supply Curve and

Market Supply CurveFirm’s Supply Curve and

Market Supply CurveA firm’s supply curve is a supply curve for that

particular firmA market supply curve is the sum of all firm’s

supply curves.

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MICRO Economics Reserve priceReserve price

This the minimum price which a seller does not want to sell any quantity.

For example , a person is selling chairs and minimum price is the 500 AF, less than this price seller is not his chairs, its called reserve price.

That depend upon on product nature and circumtanceses.

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MICRO Economics Supply typesSupply types

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MICRO Economics 1 .Very short supply1 .Very short supply

Refers to day to day to market supply. This kind of supply is fixed and can not be increased suddenly and also perishable goods.

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MICRO Economics Short SupplyShort Supply

Refers to such period of time which is enough to make adjustment by sellers to respond to price change. However, the time available is not very long. So, it is possible to manage supply within short time says 2 or 3 days.

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MICRO Economics Long period supplyLong period supply

Long period supply means that firm and industry having enough time to adjust his supply according to demand of peoples in future, long period supply all factors of production are variables, producers can change labor, land, capital within that time

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MICRO Economics LAW OF SUPPLYLAW OF SUPPLY

The law of supply states that, other factors remaining the same, when the price of a particular commodity rises, its quantity supplied (Qs) also rises and and decreases with fall in price..

There is a direct or positive relationship between the price of a commodity and quantity offered for sale over a specified period of time.

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MICRO Economics Schedule and Diagram:Schedule and Diagram:

Law of Supply can be explained with the help of the following schedule and a diagram.

Price of good (X) Quantity supplied (Qs)

20

25

30

35

100

150

180

200

Price

Qs

20

25

30

35

SupplyLine

100 150 180 200

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MICRO Economics

The economists classify the changes in supply into two types:

I. Movements along the supply curve (supply changes due to change in price):

II. Shift of the supply curve (changes in supply due to change in other factors)

Changes in SupplyChanges in Supply

MICRO Economics

Movement VS Shift in supply

Price Other factors

MICRO Economics Shift in Supply because

of following factorsShift in Supply because

of following factorsPrices of ResourcesTechnologyTaxesQuotasNumber of SellersFuture PriceWeatherSubsidies

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MICRO Economics Prices of ResourcesPrices of Resources

When resource prices fall, sellers are willing and able to produce more of the good and offer it for sale.

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MICRO Economics TechnologyTechnology

Technology is the body of skills and knowledge concerning the use or resources in production.

An advancement in technology is the ability to produce more output with a fixed amount of resources.

An advancement in technology can help lower the per-unit cost, which is the average cost of producing the good.

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MICRO Economics TaxesTaxes

Taxes on production can increase the per-unit costs of producing a good. Taxes cause the supply curve to shift to the left.

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MICRO Economics SubsidiesSubsidies

Subsidies are financial payments made by government for certain actions. Subsidies can increase production, causing the supply curve to shift to the right.

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MICRO Economics Number of SellersNumber of Sellers

The number of sellers can also impact the supply curve. If more sellers begin producing a good, supply increases, shifting the supply curve to the right.

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MICRO Economics Future PriceFuture Price

Expectations of future price movements can cause sellers to either increase or decrease the current supply.

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MICRO Economics WeatherWeather

Think of the effect the weather can have on the supply of agricultural goods such as corn and wheat.

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MICRO Economics

Changes in factor prices (cost of production decrease or increase) if COP is decreased so low price & more supply.

Changes in Technique (improved techniques will lower cost of production so more supply)

Improvement in the means of transportation Climatic changes in case of Agricultural products (if good

weather then bumper crops & more supply) Political changes

Determinants of SupplyDeterminants of Supply

MICRO Economics

Movements along the supply curve:

Changes in Supply (cont’d):Changes in Supply (cont’d):

P1

P2

P3

Q1 Q2 Q3 Qs

a

b

c exte

nsion

cont

racti

onPrice

MICRO Economics

Shift of the supply curve:

Changes in Supply (cont’d):Changes in Supply (cont’d):

Rise

Fall

Q1 Q2 QsQ0

P1

Price S1 S2

S0

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Market Effects ofChanges in Supply

Market Effects ofChanges in Supply

Changes in Supply Shift the Supply Curve

An increase in supply shifts the supply curve to the right when:

A decrease in supply shifts the supply curve to the left when:

The cost of an input decreases The cost of an input increases

A technological advance decreases production cost

The number of firms increases The number of firms decreases

Producers expect a lower price in the future

Producers expect a higher price in the future

Product is subsidized Product is taxed

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Key TermsKey Terms

perfectly competitive market

demand schedule

individual demand curve

quantity demanded

law of demand

change in quantity demanded

market demand curve

supply schedule

quantity suppliedquantity supplied

change in quantity suppliedchange in quantity supplied

market supply curvemarket supply curve

market equilibriummarket equilibrium

excess demandexcess demand

excess supplyexcess supply

change in demandchange in demand

normal goodnormal good

substitute goodsubstitute good

complementary goodcomplementary good

inferior goodinferior good

change in supplychange in supply

MICRO Economics

MARKET EQUILIBRIUM

(Demand and supply)

MICRO Economics

DEMAND:The quantity of a commodity or service consumer wanted to buy at a specified price and time.

SUPPLYIt is the amount of a commodity that sellers areable and willing to offer for sale at differentprices per unit of time.

MICRO Economics Equilibrium Equilibrium

The equilibrium is a market situation in which demand for a product becomes equal to the supply of the product.

The equilibrium price is the price at which the quantity of a good demanded in a given time period equals the quantity supplied.

MICRO Economics

The price of the commodity in the market is determined by the inter-section of the forces of demand and supply. The price at which demand and supply are equal, is known as an equilibrium price.

The quantity bought and sold at this equilibrium price is known as equilibrium output or amount.

Price EquilibriumPrice Equilibrium

MICRO Economics

PRICE QS(SUPPLY) QD(DEMAND) MARKET

05 10 50 D>S

10 20 40 D>S

15 30 30 D=S

20 40 20 D<S

25 50 10 D<S

EQUILIBRIUMEQUILIBRIUM

MICRO Economics GRAPHICAL

EQUILIBRIUMGRAPHICAL

EQUILIBRIUM

PRICE=15

QD=QS30

equilibrium

demand

supply

MICRO Economics Market SurplusMarket Surplus

A market surplus is the amount by which the quantity supplied exceeds the quantity demanded at a given price – excess supply.

A market surplus is created when the seller’s asking prices are too high.

When prices are high so demand will go down and ultimately demand and supply equality will be attained.

MICRO Economics Market ShortageMarket Shortage

A market shortage is the amount by which the quantity demanded exceeds the quantity supplied at a given price – excess demand.

In market shortage the prices will go up and ultimately will led to more supply.

Thus equilibrium is the situation where both consumers as well as producers are agreed (acceptable situation)and price is settled.

MICRO Economics

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D

S Price

Quantity

PE

QE

PE and QE represent the equilibrium price and quantity

MICRO Economics

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What is Equilibrium Price?

The price that equates the quantity demanded and the quantity supplied

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What happens if price is below equilibrium?

A shortage, or excess demand, arises

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D

S

P2

40

QDQS

At P2, QD > QS, thus a shortage or excess demand exists

Shortage

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How is the shortage eliminated?

The price rises, leading to a decrease in quantity demanded and an increase in quantity supplied.

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What happens if price is above equilibrium?

A surplus, or excess supply, arises

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D

SP1

Surplus

43

QDQS

At P1, QD < QS, thus a surplus or excess supply exists

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How is the surplus eliminated?

The price falls, leading to a decrease in quantity supplied and an increase in quantity demanded.

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D

SP3

Q3

P1 Surplus

P2

Shortage

45©©1999 South-Western College Publishing

Summary, shortages, surpluses, and equilibrium

MICRO Economics

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Summary, supply changes

Increased supply, price falls, quantity rises Decreased supply, price rises, quantity falls

MICRO Economics Objective QuestionsObjective Questions

Which one is increasing function of price

1.Demand

2.Supply

3.Consumption

It describe the law of supply

1.Supply curve

2.Supply equation

3.Supply schedule

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MICRO Economics Questions Questions

Supply curve will shift when

1.Price falls

2.Price falls

3.Technological change

supply curve explain as

1.The relationship between price and supply

2.The relationship between price and demand

3.The relationship between price and profit

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MICRO Economics Questions Questions

If tax rate increase than what happen to supply

1.Supply line will Extended

2.Supply line Contracted

3.Supply line shift leftward

4.Supply line will shift rightward

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MICRO Economics

If population increase than supply line

1. Extension

2. contraction

3. Rightward shift

4. Leftward shift

What will best explain a shift in the market supply curve to right

1. An advertisement successful promote the good

2. A new technique makes it cheaper to produce

3. The government introduce new tax

4. The price of raw materials increase 50 / 99