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$3.00 5
$2.50 4
$2.00 3
$1.50 2
Individual Supply Curve
P Ben’s Store: Ice Cream Cones
Price
Per
Cone
$2.50
$2.00
$1.50
2 3 4
Q # Cones Per Day
Market Supply Schedule
Market supply is the sum of all individual
supplies at each possible price.
Assume the ice cream market has two
firms as follows:
Price Per Cone Ben’s Jerry’s IceMart Market Supply
$0.50 0 + 0 = 0
$1.00 1 + 0 = 1
$1.50 2 + 2 = 4
$2.00 3 + 4 = 7
Market Supply Curve
P All Sellers
Price
Per
Cone
$2.00
$1.50
$1.00
1 4 7
Q # Cones Per Day
Determinants of Supply
Product’s Own Price
Input Prices
Technology
Expectations
Number of Producers
Determinant of Supply:
Market Price
Law of Supply P
There exists a
direct (positive)
relationship
between Price
and Quantity
Supplied.
Q
Change in Quantity Supplied
vs. Change in Supply
Change in Quantity Supplied
Movement along the supply curve.
Caused by a change in the Price
of the product.
Change in Supply
A shift in the supply curve, either to
the left or right. Caused by changes in
Non-Price Factors
Changes in Quantity Supplied
Price
$2.00
Quantity
3
Changes in Quantity Supplied
Price
$2.00
$1.00
Quantity
1 3
Changes in Quantity Supplied
Price
Caused by
a change
$2.00 in Price
$1.00
Quantity
1 3
Change in Supply
Price
$2.00
Quantity
3
Change in Supply
Price
$2.00
Quantity
3 6
Change in Supply
Price
Caused by
Non-Price
$2.00
Factors:
Technology,
Input Prices
3 6 Quantity
Supply and Demand Together
Equilibrium Price
The price at which the supply and demand
curve intersect. Quantity Supplied and
Quantity Demanded are equal.
Equilibrium Quantity
The quantity at which the supply and
demand curve intersect.
Forces of Demand. . .
Price
Quantity
Forces of Demand and Supply. . .
Price
Quantity
Forces of Demand and Supply At Rest
Market Equilibrium
Price
$2.00
Quantity
7
Actions of buyers and sellers that move
toward equilibrium
Excess Supply
Price is above equilibrium price, therefore
producers are unable to sell all they want
at the going price.
Excess Demand
Price is below equilibrium price, therefore
consumers are unable to buy all they
want at the going price.
Actions of buyers and sellers that move
toward equilibrium
Price
$2.50
$2.00
Quantity
4 10
Actions of buyers and sellers that move
toward equilibrium
Price Excess Supply = 6 cones
$2.50
$2.00
Quantity
4 7 10
Actions of buyers and sellers that move
toward equilibrium
Price
$2.00
$1.50
Quantity
4 7 10
Actions of buyers and sellers that move
toward equilibrium
Price
Excess
$2.00 Demand
$1.50 =6 cones
Quantity
4 7 10
Concluding Thoughts. . .
Market economies harness the forces
of supply and demand. . .
Supply and Demand together
determine the prices of the economy’s
different goods and services. . .
Prices in turn are the signals that
guide the allocation of resources.
Elasticity of Supply
Elasticity of supply of a commodity is defined as the responsiveness
of a quantity supplied to a unit change in price of that commodity.
ΔQs / Qs
Es = ------------
ΔP / P
ΔQs = change in quantity supplied
Qs = quantity supplied
ΔP = change in price
P = price
Kinds Of Supply Elasticity