 Producers offer more of a good or service as its price increases and less as its price falls
Quantity supplied: how much of a good or service a producer is willing and able to sell at a specific price
 Ceteris paribus, if a firm increases the price of a good or service, it will increase the firms profits When price goes up, suppliers recognize the chance to make money & more suppliers want to enter the market

 Shows the relationship between prices and quantity supplied

 A graphic representation of the supply schedule
Similar to demand curve except now it measures the quantity of the
goods supplied not demanded

 Measures how firms will respond to changes in the price of a good or service

 How many workers do you hire?
Marginal product of labor: change in output from hiring one of labor increases as the number of workers increase
Specialization worker
Diminishing marginal returns: when adding more workers increases total output but at a decreasing rate Limited capital
Negative marginal returns: workers get in each others way, overall output decreases

Profit = Total revenue – Total cost

 Several factors can cause a supply curve to shift
 Number of suppliers
 Government actions
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 Global events
But very important influence = suppliers’ input costs

 Non-price determinants that alter supply shift the entire curve to the right or left

 Subsidy: government payment that supports a business or market
Quota: Government imposed trade restriction
 Excise Tax: tax on the production or sale of a good

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Large share of goods and services consumed by Americans is imported
Supply is affected by conditions in other countries
 Indian wages are raised, what happens to the supply of carpets made in India?
Which was does the curve shift?

 The US imports oil from Russia,
Russia experiences a new oil discovery. What happens to the supply curve?

 You’re a soybean farmer and you expect prices of soybeans to double next month, what would you do with the crops you just harvested?
 How does that affect supply in the soybean market for this month?

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Number of suppliers in the market
If more suppliers enter, supply rises
If suppliers leave the market, supply falls
When prices rise, people enter the market

 Prices are affected by laws of supply and demand, and government action
 The point at which supply and demand come together is called Equilibrium
 Point of balance
 Quantity demanded = quantity supplied

Buyers will by as much as firms are willing to sell

 Quantity supplied is not equal to quantity demanded
 Any other price than equilibrium
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Shortage
Surplus

 Shortage: (excess demand)
Quantity demanded > quantity supplied
 Actual price is below equilibrium price

 Surplus (Excess supply)
Quantity supplied > quantity demanded
 Actual price of is higher than equilibrium price

 Price ceiling: Government imposed maximum price that can be legally charged for a GorS

 Price floor: Minimum price set by government that must be paid for a GorS

Changes in supply and demand upset market equilibrium

Markets tend towards equilibrium, meaning price & quantity will gradually move towards equilibrium