MODULE 4: DEMAND AND SUPPLY (CONTINUATION)

F. Terms to Remember
G. Supply
 Supply Schedule
 Supply Curve
H. Law of Supply
 Changes in Quantity Supplied
I. Determinants of Supply

WEEK: 4

TIME ALLOTMENT: 3 Hours

OBJECTIVES/ LEARNING OUTCOMES:

At the end of this module, the students are expected to familiarize themselves with the concepts of
supply, state the Law of Supply, identify the determinants of supply and explain how forces of supply
interacts with demand to attain equilibrium in the market.

LEARNING CONTENT:

DEMAND AND SUPPLY (CONTINUATION)

Introduction

In an economy where prices are continuously rising, people have always wondered what factors cause
prices to fluctuate. This chapter aims to show that supply is one of the main forces that cause prices to
increase and decrease.

Discussion

F. Terms to Remember
 Supply – the amount of a commodity available for sale.
 Aggregate supply – the totality of a group of producer’s supply.
 Supply schedule – the quantities producers are willing to offer for sale at various prices.
 Supply function – shows how quantity supplied is dependent on its determinants.

G. Supply
- It is defined as the number of items that sellers are willing and able to sell in the market at a
different prices during some specified period of time.

 Market Supply
- It is simply the sum of all individual supply.

 Supply Schedule
- It shows the quantity of items sellers would offer for sale at different prices. Table 2 is
the supply schedule for the day that you conducted a survey. It shows they are willing to
make at different price.

Table 2. Demand Schedule for T-shirts at your department

Quantity
Price (P)
Demanded
300.00 50
250.00 40
200.00 30
150.00 20
100.00 10

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  Supply Curve
- It shows the relationship between the price of an item and the number of units sellers will
offer for sale. It slopes upward, from left to right. Figure 4 contains the data in Table 2.
It slopes upward from left to right.

Figure 4. Supply for T-shirts

H. Law of Supply
As the supply schedule shows, you are willing to sell more T-shirts at high prices than low
price. The Law of Supply states that sellers will offer more of an item at a high price and low price.

Why does the quantity of T-shirts change at different prices? The answer is that you are willing
to sell T-shirts to make profit. The higher the price of T-shirts. The more you will be encouraged to
sell to earn more profit.
It shows the direct relationship between price and quantity supplied.

 Quantity Supplied
The number the goods that individuals are willing and able to sell at a particular price
during a particular period of time.

 Changes in Quantity Supplied

A change in quantity supplied refers to a movement along a supply curve. The only factor
that can directly cause a change in the quantity supplied of a good is a change in the price of
Tshirts, or own price.
In Figure 4, if the price is P250.00, then quantity supplied is 40 T-shirts; if the price is
P300.00, then the quantity demanded is 50 T-shirts.

 Changes in Supply
Changes in Supply refers to a shift in the supply curve. Like demand, supply in a market
typically respond to different factors other than price.

I. DETERMINANTS OF SUPPLY
1. Technological Progress
Inventions and innovations tend to make it possible to produce more or better products with
the same resources.
2. Numbers of Sellers
Increase in the number of sellers will increase the supply of goods and services in the market.
3. Cost of Production
Changes in input prices also changes the supply of goods.
4. Expectations of Future Price
If the producers expect prices to increase in the future, they may increase their production
now to gain profit when prices of that particular goods increases and vice versa.

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 Figure 5A. Increase in Supply of T-shirts Figure 5B. Decrease in Supply of T-shirts

Summary

This module outlined how the Law of Supply is applied to different economic situations, how movements
along the curve is affected in various prices and the determinants of supply. Also, it showed why an
increase in the price of a commodity will make consumers want to buy less of it and producers want to
sell more and why price decrease will cause the opposite reaction.

REFERENCES:

1. Pagoso, C., Dinio, R., Villasis, G. (2006). Introductory Microeconomics (Third Edition). Rex Book
Store, Manila, Philippines.
2. Kapoor, K.C., Soni J.C., Achrya, P.K., Riba, M., Riddi, A. (2016). Economic Theory. Vikas
Publishing House PVT.LTD

Congratulations for finishing Module 4! Keep up the good work.

Prepared:

JUVIELYN R. RAMOS
Instructor

Reviewed/Approved:

AIZA P. RUMAUAC, CPA

Program Head, Accountancy and Business Administration

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