Supply

1. Supply

2. Quantity Supplied • Amount of any good or service that sellers are willing and able to sell • Law of Supply: Other things equal (ceteris paribus), when the price of a good rises, the quantity supplied of the good also rises, and when the price falls the quantity supplied falls.

3. Market vs. Individual Supply • Sum the individual supply curves to obtain the market supply curve

4. Shifts in Supply • Input Prices: If price of an input rises, producing the item is less profitable and the firm supplies less • Technology: Innovation reduces labor needed and reduces costs thus the firm supplies more

5. Shifts in Supply (cont.) 3. Expectations: If a firm expects price to rise, it will supply less to the market today 4. Number of sellers: self explanatory – more sellers = more supply

6. Equilibrium • Point where supply and demand curves intersect • Creates equilibrium (or market-clearing) price and equilibrium quantity where both buyers and sellers are satisfied

7. Shortage vs. Surplus • Surplus = Market price is above equilibrium price so there is too much being supplied… price will fall until equilibrium • Shortage = Quantity demanded is greater than quantity supplied; market price is below equilibrium price… price will rise to equilibrium

8. Shifts affecting Equilibrium • Does it shift Demand or Supply or Both?