Supply SFLS

Supply and Demand

Supply and Demand model

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Supply and Demand Model- A Competitive MarketAssumptions:To began analyzing the model and to make it work, we assume a few assumptions in place first:

- Rational Thinking- Ceteris Paribus- A Latin word for All else being the same

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- A Competitive MarketAssumptions:To began analyzing the model and to make it work, we assume a few assumptions in place first:

- Rational Thinking- Ceteris Paribus

Its important to note, that things are Supplied based on the price but also for other reasons, just like with Demand

Key point:Supply and Demand Model

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So now you are the one making the cake

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Think you can make more in a small kitchen

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Or a big kitchen?

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- Ceteris Paribus, the relationship between the quantity sold and the price of a good.

Supply and Demand ModelSupply

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10 RMB10 RMB10 RMBMake more at this price

100 RMB100 RMB100 RMBOr at this price?

Supply and Demand ModelSupply- The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price.

Quantity SuppliedThe law of SupplyCeteris Paribus, (all other things staying the same) If the price of a good rises, the quantity supplied increases. If the price of a good falls, the quantity supplied decreases. - Ceteris Paribus, the relationship between the quantity sold and the price of a good.

+=

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Ceteris Paribus, (all other things staying the same) If the price of a good rises, the quantity supplied increases. If the price of a good falls, the quantity supplied decreases.

Prices Quantity supplied

Prices Quantity supplied

This is a movement along the supply curve and does not change where the supply curve is

The law of SupplySupply and Demand Model

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SUPPLY

Quantity of coffee beans (billions of pounds)Price of coffee beans (per pound)

70911151317

$2.001.751.501.251.000.750.50

As price rises, the quantity supplied rises.Supply curve, S

Supply Schedule for Coffee BeansPrice of coffee beans(per pound) Quantity ofcoffee beans supplied(billions of pounds)$2.0011.61.7511.51.5011.21.2510.71.0010.00.759.10.508.0

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Changes in Supply without the price changing

Shift Left

Shift RightSUPPLY (shifts)

This is a shift of the supply curve itself at any given price

= Less Supply at the same price

= More Supply at the same price

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A movement along the supply curve is a change in the quantity supplied of a good that is the result of a change in that goods price. Movement Along the Supply Curve

701011.2121517

$2.001.751.501.251.000.750.50

S1S2

ACB

Price of coffee beans (per pound)Quantity of coffee beans (billions of pounds) is not the same thing as a shift of the supply curveA movement along the supply curve

Figure Caption: Figure 3-8: Movement Along the Supply Curve Versus Shift of the Supply CurveThe increase in quantity supplied when going from point A to point B reflects a movement along the supply curve: it is the result of a rise in the price of the good. The increase in quantity supplied when going from point A to point C reflects a shift of the supply curve: it is the result of an increase in the quantity supplied at any given price.

Changes (shifts) in SUPPLY (NOT quantity supplied)1.) Number of Sellers2.) Price of Resources or Inputs3.) Prices of Related Goodsi) Substitute in Productionii) Compliment in Production4.) Productivity 5.) Expectations

The short answer is: Everything else that is NOT due to a change in price!

5 main reasons:

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More sellers = more Supply at every given priceLess sellers = less Supply at every given price

Changes (shifts) in SUPPLY 1.) Number of Sellers

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More sellers, more supply, duh


2.) Number of Resources or Inputs

Resource and input prices influence the cost of production.

The more it costs to produce, less is suppliedThe less it costs to produce, more is supplied

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Example:Ceteris Paribus If you pay more Taxes = Less profit = Less supply

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PAY MORE TAXES = An Input cost so it is more expensive to produce the same thing so you produce less.Shifts of the Supply Curve

S2S1

PriceQuantityDecrease in supply

Figure Caption: Figure 3-9: Shifts of the Supply CurveAny event that increases supply shifts the supply curve to the right, reflecting a rise in the quantity supplied at any given price. Any event that decreases supply shifts the supply curve to the left, reflecting a fall in the quantity supplied at any given price.

Note to the instructor: When economists talk about an increase in supply, they mean a rightward shift of the supply curve: at any given price, producers supply a larger quantity of the good than before. And when economists talk about a decrease in supply, they mean a leftward shift of the supply curve: at any given price, producers supply a smaller quantity of the good than before.



Example:

Ceteris ParibusIf your input prices go up = Less profit = Less supply

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Paying more for apples to sell

S3S1






Example:Ceteris ParibusIf I make iphones and I used to pay the man and now I pay the woman less money

= more profit for me = more supply I am willing to do

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Paying workers less money

S2S1

PriceQuantityIncrease in supply





Example:

Ceteris ParibusIf I make iphones and now the workers protest for higher wages and now I have to pay this woman more money = Less profit for me = Less supply I am willing to do

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Paying workers more money

S3S1




You are a seller producing milk..

Cow Prices Increase

Now you can produce less milk.



3.) Price of Related Goods

i.) Substitute in Production A good that can be consumed in place of another good using the same resources to make either one.

Supply increases, if price of its substitutes in production falls.Supply decreases, if price of its substitutes in production rises.

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Supply of this goes up The price of this fallsIFSupply of this goes downThe price of this goes up

IFi.) Substitute in Production

Chicken Demand is up

You are a farmer producing cows and chickens

Chicken Demand is up

Now substitute cows for more chickens.




i.) Substitute in Productionii.) Complement in Production A good that is produced along with another good.

Supply increases, if price of its complements in production rises.Supply decreases if price of its complements in production falls.

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Supply of this goes up The price of this goes upIFSupply of this goes downThe price of this goes down

IF

i.) Substitute in Production

Milk Demand is up

You are a farmer producing cows for milk production

Milk Demand is up

Now produce more cows to make more milk. (can lead to more beef production)




4.) Productivity

- Productivity is output per unit of input.- An increase in productivity lowers costs and increases supply. Example; - an advance in technology increases supply possibilities.- or decrease in productivity raises costs and decreases supply.

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Whats more productive?Her

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Or these?

Which cow can produce more?




4.) Productivity

5.) Expectations - Expectations about future prices influence supply.- Expectations of future input prices also influence supply.

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If you expected something to happen do you think you would change your behavior?

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Beef prices set to rise

If you expected this to happen in the future

Beef prices set to rise

Likey began to produce more today.

Milk prices set to rise

Same for complements in production.

Chicken Price will go up

Can impact substitutes in production too

Chicken Price will go up

Its all connected.



5 main reasons:

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Individual SupplyAll of these factors are related to individual supply of stuff.We want to also look at markets as a whole of many suppliers.

We have seen so far that number of sellers is related to changes in supply.Supply and Demand Model

Individual SupplyThe sum of the supply of all the sellers in a market.

Add up each sellers Individual Supply = Market SupplyMarket SupplySupply and Demand Model

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So to Summarize

Supply and Demand Model- A Competitive MarketAssumptions:To began analyzing the model and to make it work, we assume a few assumptions in place first:

- Rational Thinking- Ceteris Paribus- A Latin word for All else being the same

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Supply and Demand ModelSupply- The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price.

Quantity SuppliedThe law of SupplyCeteris Paribus, (all other things staying the same) If the price of a good rises, the quantity supplied increases. If the price of a good falls, the quantity supplied decreases. - Ceteris Paribus, the relationship between the quantity sold and the price of a good.

+=

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5 main reasons:

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The EndThank you

Supply SFLS

Education

Transcript of Supply SFLS