Chapter 8

Supply
Demand

DEMAND
is the
WILLINGNESS
and ABILITY to
SELL a product.

Supply is influenced by the amount produced, but is not the

same as production.
• Some of the amount produced today may be stored.
• Some of the output offered for sale today may have come
from stocks.

MARKET SUPPLY is the total supply for a product supplied by

all the firms in the industry. Market supply is calculated in a
similar way to market demand.
 Supply and price

In contrast to demand, supply is DIRECTLY RELATED to

price. A rise in price will lead to a rise in supply.

A supply schedule
A supply schedule records the different quantities supplied at
different prices. Table 8.1 shows a supply schedule for train
tickets from Station X to Station Y.
Price ($) Quantity supplied
50 6000
45 5000
40 4300
35 3800
30 3600
25 3500
Supply curve

From this information, a supply curve can be plotted on a diagram.

As with demand curves, supply curves can be drawn as straight

lines.

PRICE is measured on the VERTICAL AXIS and QUANTITY

SUPPLIED on the HORIZONTAL AXIS.
The effect of a change in price on supply

An EXTENSION IN SUPPLY will tell an economist that a rise

in the quantity supplied caused by a RISE IN THE PRICE of
the product itself.
In contrast, A FALL IN PRICE will cause A CONTRACTION
IN SUPPLY which can also be referred to as a decrease in
quantity demanded..
Definition

Supply: the willingness and ability to sell a product.

Market supply: total supply for a product.

An extension in a supply: a rise in the quantity supplied caused by a

rise in the price of the product itself

A contraction in a supply: a fall in the quantity supplied caused by a

fall in the price of the product itself.