Supply and Demand

● Supply
○ Supply: Describes how much of a good/service producers will offer for sale under given circumstances
○ Quantity supplied: amount of a particular good/service that producers will offer for sale at a given price during a
specified period
■ Find the overall market supply by adding up individual decisions of each producer
● Eg if you sell phones for $110, use the whole factory
● If you sell for $80, might sell laptops too
● If you sell for $55, you will make more money just selling only laptops
○ Law of supply: states that (with all else equal) quantity supplied increases as price increases and vice versa
○ Supply varies with price because the decision to make a good is about the trade off between the benefit the producer
will receive from selling it and the opportunity cost of the time and resources that go into producing it
■ As market price goes up, the benefit of production goes up relative to opportunity cost
● The trade off is favourable!
■ (If price of raw materials stays the same) If the price of phones increase, new factories will be opened up
(because they’re willing to put more into it because it will bring in more profit)
○ Supply schedule: quantities of a good that producers will supply at various prices
○ Supply curve: shows producer’s willingness to sell; it’s the minimum price producers must receive to supply any
given quantity
● Determinants of supply
○ The law of supply describes how the quantity that producers are willing to supply changes as price changes
○ A number of non price factors determine the opportunity cost of production → producer’s willingness to
supply (the tradeoff that producers face)
■ When a non determinant of supply changes, the entire supply curve will shift
○ These shifts reflect a change in the quantity of goods supplied at every price
○ Can be divided into 5 major categories: price of related goods, technology, prices of inputs, expectations, and the
number of sellerso

The schedule shows the

amount of cellphones
supplied each year at
various prices; as prices
decrease, suppliers want
to produce fewer cell
phones. The curve is a
graphic representation of
the supply schedule → it
shows the amount of cell
phones suppliers will
make at various prices.
(Eg the will make 30
million cell phones that
cost $120, and 40 mill cell
phones that cost $160,
etc)
● Prices of related goods
○ This determines supply because it affects the opportunity cost of production
■ Eg when you choose to produce cellphones, you forgo the profits you would have earned from producing
something else
■ If the price of that “something else” increases, the amount you forgo in profit also increases
● Like if you were a farmer who grew wheat or corn - if the price of corn increases, the quantity of
wheat (substitute crop) he is willing to grow falls, because each acre he devotes to what is one less
he could be using to grow corn
■ Basically if something is profitable, you stop selling other stuff because the opportunity cost of that
something is higher now
● Technology
○ Improved technology enables firms to produce more efficiently, using fewer resources to make a given product
○ Lowers production costs, and increases the quantity producers are willing to supply at each price
■ Eg cell phones - popularity has gone up, it’s gotten more popular
■ Technological innovation has allowed the costs of producing a cell phone to go down
■ So now producers are more willing to supply more cell phones at lower prices
● Expectations
○ Supplier’s expectations about the future affect quantity supplied; eg when the price of real estate is expected to rise
later, more real estate developers wait to start construction projects and decreasing the supply of houses in the near
future
■ When real estate prices later are projected t o fall, many of these projects will be rushed to get done which
makes the supply of houses rise
● Number of sellers
○ The market supply curve represents the amount of product that a particular number of producers will supply at
various prices in a given market
■