Supply and Demand: Supply and Equilibrium

Module 6Feb 2015

Quantity supplied – the actual amount of a good or service producers are willing to sell at a specific price

Supply schedule shows how much of a good or service producers will supply at different prices

Supply curve – shows the relationship between quantity supplied and price

Higher price generally leads to higher quantity supplied. Supply has an upward sloping curve

Supply Schedule and Supply Curve

Law of supply – other things being equal, the price and quantity supplied of a good are positively related.

Change in supply – a shift of the supply curve which changes the quantity supplied at any given price (ex: more producers)

Movement along the supply curve – a change in the quantity supplied of a good that is the result of a change in that good’s price.

Supply

Candy at .30 – 25, .50 – 100 pieces, at .75 – 200 pieces, at 1.00 – 300 pieces

Supply Schedule

Price of Candy per piece

Quantity of candy supplied - pieces

1.00 300

.75 200

.50 100

.30 25

An increase in supply means a rightward shift of the supply curve

A decrease in supply means a leftward shift of the supply curve

Changes in input prices Changes in the prices of related goods or

services Changes in technology Changes in expectations Changes in the number of producers

Supply Shifts

Input prices – inputs are anything used to produce a good or service, if the price of an input changes, the price to produce the good or service changes, also.

Prices of Related Goods or Services – Say a farmer raises chickens and goats…if the consumers demand more chickens than goats, then the farmer may choose to raise more chickens, this is a substitute in production.

Supply Shifts

Since the farmer is raising chickens, a by-product of that is either eggs or fertilizer or both. Because the farmer now has more than one product and each is supplied at any given price, these by-products are complements in production.

Technology – this doesn’t have to be super-duper technology, it could be a better ice cream scoop for a Baskin-Robbins…anything that allows for faster or greater production

Supply Shifts

Expectations – when suppliers have some choice about when they put their goods up for sale◦ Ex: Water skis and snow skis – a company makes

both but focuses supply seasonally◦ Ex: A company may choose to supply a limited

amount of goods during September and October, but then release a stockpile during November and December.

Supply Shifts

Individual supply curve illustrates the relationship between the quantity supplied and price for an individual producer

Market supply curve illustrates the total quantity supplied from all the individual producers

Supply Shifts

Equilibrium – an economic situation is when no individual would be better off doing something different

Competitive Market is in equilibrium when price has moved to a level at which the qty demanded of a good equals the qty supplied

The price at which this takes place is Equilibrium Price (Market-Clearing Price)

The qty of the good bought and sold at that price is Equilibrium Quantity

Supply, Demand, Equilibrium

Equilibrium price – occurs in an established market where lowering the price doesn’t make sense when the seller can get the same price as every other seller.

Surplus – when the qty supplied exceeds the qty demanded. This occurs when the price is ABOVE its equilibrium level.

Shortage – when the qty demanded exceeds the qty supplied. This occurs when the price is BELOW its equilibrium level.

Market Equilibrium

Module 6 Review Questions Bade and Parkin – page 108, questions 1-6

Review