Chapter 3: The Nature of Supply

• Supply:

Quantities of a product that suppliers are willing and able

to sell at various prices per period of time, other things
being equal
Determinants of Supply
Law of supply

Assumption of ceteris paribus

Supply curve
 Individual Supply
Draw the supply curve
Price
Producer A’s Supply schedule
($)
Price of rice Quantity
per kilo ($) supplied
(kilos per
month)
$5 10
$ 10 15
$ 15 20
$ 20 25
$ 25 30 Quantity
$ 30 35
Market Supply Schedule
Price of rice Quantity Quantity Quantity Market
per kilo ($) supplied supplied supplied supply
(kilos per (kilos per (kilos per (kilos per
month) month) month) month)
Producer A Producer B Producer C
$5 10 5 15 30
$ 10 15 25 20 60
$ 15 20 45 25 90
$ 20 25 65 30 120
$ 25 30 85 35 150
$ 30 35 105 40 180
Market Supply Curve
Price
($)

30
25
20
15

10
5

10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 Quantity
(kg per
month)
Factors influencing Supply
• Costs of production

• Availability of resources and climate

• Technology

• Government Regulation

• Taxes and subsidies

• Price of other goods

Factors influencing Supply
Costs of production

An increase in rent and labour wage will increase costs of production

P

S1

Qs
Factors influencing Supply
Availability of resources and climate

More land becomes available, farmers will be able to produce rice

P
S1

Qs
Factors influencing Supply
Technology

New technology lead to creation of new products

P
S1

Qs
Factors influencing Supply
Government Regulation

Health and safety, minimum wage and employment legislation impact a

producer’s costs P
S1

Qs
Factors influencing Supply
Taxes: Increase costs of production
Subsidies : Decrease costs of production

P P
S1
S1

Qs Qs
Factors influencing Supply
Price of other goods

Market for Sugar Market for Wheat

P P
S1
S1

P1

Q1 Qs Qs