Quantity supplied is the amount of a good that sellers are willing and able to sell.

Law of Supply
The law of supply states that there is a
direct (positive) relationship between price and quantity supplied.

Supply Schedule
The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.

The supply curve is the upward-sloping line relating price to quantity supplied…

Supply Schedule
Price Quantity
$0.00
0.50
0
0
1.00
1.50
2.00
2.50
3.00
1
2
3
4
5

Price of
Ice-Cream
Cone
$3.00
2.50
2.00
1.50
1.00
0.50
Supply Curve
Price Quantity
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
0 1 2 3 4 5 6 7 8 9 10 11 12
0
0
1
2
3
4
5
Quantity of
Ice-Cream
Cones

 Market supply refers to the sum of all individual supplies for all sellers of a particular good or service.
 Graphically, individual supply curves are summed horizontally to obtain the market supply curve.

Determinants of Supply
R – Resource Costs/Prices
O—Other goods’ prices (substitutes in production)
T—Taxes and Subsidies
T—Technology Changes
E—Expectations of Suppliers (price changes anticipated
N—Number of Suppliers

Change in Quantity Supplied versus
Change in Supply
Change in Quantity Supplied
 Movement along the supply curve.
 Caused by a change in the market price of the product.

Price of
Ice-Cream
Cone
$3.00
Change in Quantity Supplied
C
S
A rise in the price of ice cream cones results in a movement along the supply curve.
A
1.00
0 1 5
Quantity of
Ice-Cream
Cones

Change in Quantity Supplied versus Change in Supply
Change in Supply
 A shift in the supply curve, either to the left or right.
 Caused by a change in a determinant other than price.

Price of
Ice-Cream
Cone
Change in Supply
S
3
S
1
Decrease in
Supply
Increase in
Supply
S
2
0
Quantity of
Ice-Cream
Cones

Supply and Demand In Balance
Equilibrium Price
 The price that balances supply and demand—hence, it is referred to as the market-clearing price. On a graph, it is the price at which the supply and demand curves intersect.
Equilibrium Quantity
 The quantity that balances supply and demand (market clearing quantity). On a graph it is the quantity at which the supply and demand curves intersect.

Supply and Demand Together
Demand Schedule Supply Schedule
Price Quantity
$0.00
19
0.50
1.00
1.50
2.00
2.50
3.00
16
13
10
7
4
1
Price Quantity
$0.00
0.50
0
0
1.00
1.50
2.00
2.50
3.00
1
4
7
10
13
At $2.00, the quantity demanded is equal to the quantity supplied!

Equilibrium of
Supply and Demand
Price of
Ice-Cream
Cone
$3.00
2.50
2.00
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12
Supply
Equilibrium
Demand
Quantity of
Ice-Cream
Cones

• Equilibrium means there is ideal allocation of resources. The market is cleared. If it is not, there is either a surplus or shortage which are both inefficient

Excess Supply
Price of
Ice-Cream
Cone
$3.00
2.50
2.00
1.50
1.00
0.50
Surplus
0 1 2 3 4 5 6 7 8 9 10 11 12
Supply
Demand
Quantity of
Ice-Cream
Cones

Surplus book
When the price is above the equilibrium price, the quantity supplied exceeds the quantity demanded. There is excess supply or a surplus.
Suppliers will lower the price to increase sales, thereby moving toward equilibrium.

Excess Demand
Price of
Ice-Cream
Cone
$2.00
$1.50
Supply
Shortage Demand
0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of
Ice-Cream Cones

Shortage
When the price is below the equilibrium price, the quantity demanded exceeds the quantity supplied. There is excess demand or a shortage.
Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.

Three Steps To Analyzing Changes in
Equilibrium
 Decide whether the event shifts the supply or demand curve (or both).
 Decide whether the curve(s) shift(s) to the left or to the right.
 Examine how the shift affects equilibrium price and quantity.

How an Increase in Demand Affects the
Equilibrium
Price of
Ice-Cream
Cone
1. Hot weather increases the demand for ice cream...
$2.50
2.00
2. ...resulting
in a higher price...
0
3. ...and a higher quantity sold.
7
Supply
New equilibrium
Initial equilibrium
10
D
2
D
1
Quantity of
Ice-Cream Cones

How a Decrease in Supply Affects the
Equilibrium
Price of
Ice-Cream
Cone
S
2
1. An earthquake reduces the supply of ice cream...
S
1
$2.50
2.00
2. ...resulting
in a higher price...
New equilibrium
Initial equilibrium
Demand
0 1 2 3 4 7 8 9 10 11 12 13
3. ...and a lower quantity sold.
Quantity of
Ice-Cream Cones

What Happens to Price and Quantity When
Supply or Demand Shifts?
No Change
In Demand
An Increase
In Demand
A Decrease
In Demand
No Change
In Supply
P same
Q same
P up
Q up
P down
Q down
An Increase
In Supply
P down
Q up
P ambiguous
Q up
P down
Q ambiguous
A Decrease
In Supply
P up
Q down
P up
Q ambiguous
P ambiguous
Q down

1. “Gold is valuable because so many people hunt for it.”
True, false or uncertain, and why?

False. Gold is valuable because of supply and demand. People search for gold because it is valuable.
There is a fairly small quantity supplied and a high quantity demanded for gold. The price of something does not depend solely on the cost of production.

Recently the price of beef rose. Use graphs to show that the increase in price could be consistent with the following:
(A) The quantity of beef consumed falls.

(B)The quantity of beef consumed rises.
(C) The quantity of beef consumed stays the same.

A newspaper headline says, “The Coldest Winter in 20 Years
Brings Record Prices for Heating Oil.”
(A) Using a graph of home heating oil, show and explain how price changed.
T – Tastes and
Preferences
R – prices of Related
Goods (substitutes and complements)
I – Income of Buyers
B – number of Buyers
E – Expectations of the future
(B)What other factors could cause the price of heating oil to increase?
R – Resource Costs/Prices
O—Other goods’ prices (substitutes in production)
T—Taxes and Subsidies
T—Technology Changes
E—Expectations of Suppliers (price changes anticipated
N—Number of Suppliers

13 is due tomorrow;
16 is due Wednesday