THE MARKET
Concept of Supply
EXAMINING SUPPLY
 Supply is defined as the quantities that sellers will offer for
sale at various prices during a given point in time.
 Like consumers, suppliers react to price changes but in a
completely opposite way: that is, as price rises, they want to
supply more.
 Why do you think this is?
 Profit
 Changes take place of the supply side of the market as the
number and variety of products available to purchase is
constantly increasing.
 One example of this change is the influx of cell phones that
can be found in the marketplace.
 Often products disappear as quickly as they appear. The
rise of the ball-point pen has nearly eliminated the use of
fountain pens. Even large sized vehicles are far less
common compared to the popularity of the compact
vehicles.
LAW OF SUPPLY AND DEMAND
 The Law of Demand: The quantity demanded varies
inversely with price, as long as other things do not change.
 The Law of Supply: The quantity supplied will increase if
price increases and fall if price falls, as long as other things
do not change.
REMINDER
 Much the same as demand, when we look at how supply
changes in the marketplace we look at a change in one
factor while all other remain constant. This is to simplify the
process for the purpose of this class.
FACTORS THAT AFFECT SUPPLY
Price – The higher the price a supplier can receive
for a product the more of the product the supplier
will offer to the market. This makes sense because
suppliers want to make as much profit as possible.
The opportunity cost of not providing as product
is greater when the price is higher.
 Production Cost – There are a variety of expenses involved
in supplying products to the marketplace including cost of
raw materials, transportation, rent, wages, salaries, machines
and equipment, taxes… A change in any of these costs can
influence the supply of a product.
 Technology Changes – Improvements in technology can also be a factor
in supple changes. As new tech and innovations are introduced many
supplies can improve supply.
 Government Regulation – All levels of government can
influence the level of supply of certain products as they can
enact regulation that limit the production of certain crops.
These regulations can influence the supply of various
products.
 Psychology of Owner – The individual owners goals and
motivations may affect the supply of certain products.
Ultimately, it is a decision that they can make, despite the
assumption that owners want to make as much profit as
possible.
 Weather Conditions – Especially when you consider the
agricultural industry in particular, weather conditions can
potentially have a huge impact on supply of many products.
SUPPLIER RESPONSE TO PRICE CHANGE
 When the price of a product is higher the quantity supplied
to the market increases.
 Suppliers want to get a much product into the market but
at some point the cost of increasing the supply goes up.
Since costs increase a higher price must be obtained in
order for the supply to be increased.
 With an increase in costs to a supplier they are now faced
with a decrease in supply. In contract, any change that will
lower cost will move the supply curve to the right and will
result in an increase in supply.
 Any constant factor that changes will result in a change in
supply. Only the price of the product will affect quantity
supplied.