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#14 Lecture notes: (for lectures and discussions only)

Book references and suggested readings:
A. Economics. Campbell R. McConnel, Stanley C. Rue, Sean M. Flynn, and Randy Grant
Global Edition, New York, U.S.A., McGrowHill/Irwin, 2012
B. Economics 19th Edition by Paul A. Samuelson and William D. Nordhaus
Copright 2010, 2005,2001 by McGraw Hill Companies, Inc.
C. Economics for Consumer, Bernardo Villegas
4th Edition, 1983 Sinag-Tala Publishers, Inc., Manila, Philippines

Supply
Supply is a schedule or curve showing the various amounts of a product that producers are willing and able to make
available for sale at each possible prices for a given period time. The supply curve or schedule shows as firms will produce
and offer for sale more of their product at a higher price than at a low price, other things equal.

S1

PRICES 20
Supply curve
15
The changes in supply-quantity points within the
10 supply curve is referred to as change in quantity
supplied or movement along the supply curve
5

0 10 20 30 40 50
QUANTITY

Law of Supply
As Price decreases, the quantity supplied decreases and as price increases, the quantity supplied increases, other things
equal.
The positive or direct relationship between price and quantity supplied is known as Law of Supply.

To supplier, price means revenue which is an incentive for them in producing and selling goods. So the higher the price the
more revenue they get so they produce more while a lower price is a disincentive that they are not incline to produce and
sell more.

Same as in Demand, price is also the important factor on the of amount quantity supplied however other factors referred as
determinants of supply also affects quantity supplied.

Basic determinants of supply

1. Resource prices – prices of resources in the production process are one of basis of production costs. Any increase
on the prices of resources increases costs of production in turn decreases profit margin for a given price of goods.
The reduction in profit reduces incentive for supplier to produce and sell more.
2. Technology – improvements of technology specifically production techniques reduces the use of more resources in
turn reduces cost and increases output or supply.
3. Taxes and subsidies – Taxes are costs for supplier, increases of sales tax and property taxes increases and
reduces supply. Subsidies is the opposite of taxes, when government subsidizes the production of goods, it
reduces costs of production in turn increases supply.

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PRELIM continuation…
#15 Lecture notes: (for lectures and discussions only)
Book references and suggested readings:
A. Economics. Campbell R. McConnel, Stanley C. Rue, Sean M. Flynn, and Randy Grant
Global Edition, New York, U.S.A., McGrowHill/Irwin, 2012
B. Economics 19th Edition by Paul A. Samuelson and William D. Nordhaus
Copright 2010, 2005,2001 by McGraw Hill Companies, Inc.
C. Economics for Consumer, Bernardo Villegas
4th Edition, 1983 Sinag-Tala Publishers, Inc., Manila, Philippines

4. Prices of other goods – Suppliers plants and equipments can be used to produce alternative goods. Example T-
shirts and pants. If price of pants increases than t-shirts suppliers are inclines to produce more of pants. The
substitution in production will reduce the supply of t-shirts but increases supply of pants.
5. Producers’ expectations – Changes in expectations about future price of a certain goods will affect producers’
willingness to produce and supply such product. Example if farmers’ expectation of corn price will increase they will
be willing to plant corn instead of rice or vegetables.
6. Number of sellers – the larger the number of sellers the bigger the market supply and vice versa, other things equal.
When more firms enters into certain industry, there will an increase in market supply, when firms exit from certain
industry, supply decreases.

Change in supply means the shift of the entire supply curve.

S2 means means increase in supply, a shift of the supply curve upward to the left.

PRICES

S2 S3 means increase in supply, a shift

of supply curve downward to the right
S1

S3

0 QUANTITY

The decisions of buyers and sellers in buying particular goods interact to determine the equilibrium price and quantity of
such particular goods.

Equilibrium price also called market-clearing price is the price where the intentions of buyers and sellers match and in which
the quantity demanded equals quantity supplied. The equilibrium quantity is the quantity at which the intentions of buyers
and sellers match as such the quantity demanded and the quantity supplied are equal.
At equlibirum price and quantity, there is an absence of shortage and surplus in the quantity of certain goods as such the
market is in equilibrium which means it is in balance or at rest.

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