Understanding Supply

Chapter 5.1

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

What Supply Means in Economics

Suppose you are a supplier, or producer, of TV sets, and the price of a set rises from $300 to $400.◦ Would you want to supply more or fewer TV sets

at the higher price?—think about your willingness and ability to supply labor!

Most people say MORE!◦ If you did you instinctively understand the law of

supply!

You Make the Call!!

The law of supply states that as the price of a good increases, the quantity supplied of the good increases, and as the price of a good decreases, the quantity supplied of the good decreases

Law of Supply:If P then QsIf P then QsWhere P = price and Qs = quantity supplied

What is the Law of Supply?

Law of Supply:If P then Qs If P then Qs

Law of Demand:If P then Qd If P then Qd

Law of Supply VS. Law of Demand

Remember: “supply” refers to the entire line!

Quantity supplied refers to the number of units of a good produced and offered for sale at a specific prices◦ “quantity supplied” refers to an amount on the

line!

Supply versus Quantity Supplied

A supply curve is a graph that shows the amount of a good sellers are willing and able to sell at various prices

Illustrating the Law of Supply Cont.

Most of the goods supplied in the United States are supplied by business firms◦ Dell, Boeing, Heinz, Nike, etc.

A firm’s supply curve is what it sounds like: it is the supply curve for a particular firm

A market supply curve is the sum of all firms’ supply curves

A Firm’s Supply Curve and a Market Supply Curve

The law of supply, which holds that as price rises, quantity supplied rises, does not hold true for all goods; nor does it hold true over all time periods◦ Goods that cannot be produced anymore—

Antonio Stradivai’s violins◦ Sold out concerts◦ Beachfront property

A Vertical Supply Curve

SP

QQ1

P1

P2

Q changes by 0%

P rises by 10%