CH # 5 Supply Analysis 1 MICRO Economics Supply 2 / 99 تجزيه وتحليل عرضه.
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Transcript of CH # 5 Supply Analysis 1 MICRO Economics Supply 2 / 99 تجزيه وتحليل عرضه.
CH # 5
Supply Analysis Supply Analysis
1
MICRO Economics SupplySupply
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وتحليل تجزيهعرضه
MICRO Economics TERMS TO KNOW:TERMS TO KNOW:
Meaning of supply and Stock1
Law of supply, schedule and Diagram2
Changes in supply3
MICRO Economics What is Supply?What is Supply?
Supply is the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.
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MICRO Economics
SupplySupply means the quantities of a commodity offered for sale at a given price.
StockStock means the total quantity of a commodity which a seller has with him in warehouse and has not yet brought for sale.
Supply and Stock: Supply and Stock:
عرضه
ذخيره
MICRO Economics Firm’s Supply Curve and
Market Supply CurveFirm’s Supply Curve and
Market Supply CurveA firm’s supply curve is a supply curve for that
particular firmA market supply curve is the sum of all firm’s
supply curves.
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MICRO Economics Reserve priceReserve price
This the minimum price which a seller does not want to sell any quantity.
For example , a person is selling chairs and minimum price is the 500 AF, less than this price seller is not his chairs, its called reserve price.
That depend upon on product nature and circumtanceses.
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MICRO Economics Supply typesSupply types
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MICRO Economics 1 .Very short supply1 .Very short supply
Refers to day to day to market supply. This kind of supply is fixed and can not be increased suddenly and also perishable goods.
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MICRO Economics Short SupplyShort Supply
Refers to such period of time which is enough to make adjustment by sellers to respond to price change. However, the time available is not very long. So, it is possible to manage supply within short time says 2 or 3 days.
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MICRO Economics Long period supplyLong period supply
Long period supply means that firm and industry having enough time to adjust his supply according to demand of peoples in future, long period supply all factors of production are variables, producers can change labor, land, capital within that time
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MICRO Economics LAW OF SUPPLYLAW OF SUPPLY
The law of supply states that, other factors remaining the same, when the price of a particular commodity rises, its quantity supplied (Qs) also rises and and decreases with fall in price..
There is a direct or positive relationship between the price of a commodity and quantity offered for sale over a specified period of time.
قانونقانونعرضهعرضه
MICRO Economics Schedule and Diagram:Schedule and Diagram:
Law of Supply can be explained with the help of the following schedule and a diagram.
Price of good (X) Quantity supplied (Qs)
20
25
30
35
100
150
180
200
Price
Qs
20
25
30
35
SupplyLine
100 150 180 200
و نمودار جدول
MICRO Economics
The economists classify the changes in supply into two types:
I. Movements along the supply curve (supply changes due to change in price):
II. Shift of the supply curve (changes in supply due to change in other factors)
Changes in SupplyChanges in Supply
MICRO Economics
Movement VS Shift in supply
Price Other factors
MICRO Economics Shift in Supply because
of following factorsShift in Supply because
of following factorsPrices of ResourcesTechnologyTaxesQuotasNumber of SellersFuture PriceWeatherSubsidies
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MICRO Economics Prices of ResourcesPrices of Resources
When resource prices fall, sellers are willing and able to produce more of the good and offer it for sale.
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MICRO Economics TechnologyTechnology
Technology is the body of skills and knowledge concerning the use or resources in production.
An advancement in technology is the ability to produce more output with a fixed amount of resources.
An advancement in technology can help lower the per-unit cost, which is the average cost of producing the good.
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MICRO Economics TaxesTaxes
Taxes on production can increase the per-unit costs of producing a good. Taxes cause the supply curve to shift to the left.
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MICRO Economics SubsidiesSubsidies
Subsidies are financial payments made by government for certain actions. Subsidies can increase production, causing the supply curve to shift to the right.
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MICRO Economics Number of SellersNumber of Sellers
The number of sellers can also impact the supply curve. If more sellers begin producing a good, supply increases, shifting the supply curve to the right.
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MICRO Economics Future PriceFuture Price
Expectations of future price movements can cause sellers to either increase or decrease the current supply.
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MICRO Economics WeatherWeather
Think of the effect the weather can have on the supply of agricultural goods such as corn and wheat.
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MICRO Economics
Changes in factor prices (cost of production decrease or increase) if COP is decreased so low price & more supply.
Changes in Technique (improved techniques will lower cost of production so more supply)
Improvement in the means of transportation Climatic changes in case of Agricultural products (if good
weather then bumper crops & more supply) Political changes
Determinants of SupplyDeterminants of Supply
MICRO Economics
Movements along the supply curve:
Changes in Supply (cont’d):Changes in Supply (cont’d):
P1
P2
P3
Q1 Q2 Q3 Qs
a
b
c exte
nsion
cont
racti
onPrice
MICRO Economics
Shift of the supply curve:
Changes in Supply (cont’d):Changes in Supply (cont’d):
Rise
Fall
Q1 Q2 QsQ0
P1
Price S1 S2
S0
MICRO Economics
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Market Effects ofChanges in Supply
Market Effects ofChanges in Supply
Changes in Supply Shift the Supply Curve
An increase in supply shifts the supply curve to the right when:
A decrease in supply shifts the supply curve to the left when:
The cost of an input decreases The cost of an input increases
A technological advance decreases production cost
The number of firms increases The number of firms decreases
Producers expect a lower price in the future
Producers expect a higher price in the future
Product is subsidized Product is taxed
MICRO Economics
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Key TermsKey Terms
perfectly competitive market
demand schedule
individual demand curve
quantity demanded
law of demand
change in quantity demanded
market demand curve
supply schedule
quantity suppliedquantity supplied
change in quantity suppliedchange in quantity supplied
market supply curvemarket supply curve
market equilibriummarket equilibrium
excess demandexcess demand
excess supplyexcess supply
change in demandchange in demand
normal goodnormal good
substitute goodsubstitute good
complementary goodcomplementary good
inferior goodinferior good
change in supplychange in supply
MICRO Economics
MARKET EQUILIBRIUM
(Demand and supply)
MICRO Economics
DEMAND:The quantity of a commodity or service consumer wanted to buy at a specified price and time.
SUPPLYIt is the amount of a commodity that sellers areable and willing to offer for sale at differentprices per unit of time.
MICRO Economics Equilibrium Equilibrium
The equilibrium is a market situation in which demand for a product becomes equal to the supply of the product.
The equilibrium price is the price at which the quantity of a good demanded in a given time period equals the quantity supplied.
MICRO Economics
The price of the commodity in the market is determined by the inter-section of the forces of demand and supply. The price at which demand and supply are equal, is known as an equilibrium price.
The quantity bought and sold at this equilibrium price is known as equilibrium output or amount.
Price EquilibriumPrice Equilibrium
MICRO Economics
PRICE QS(SUPPLY) QD(DEMAND) MARKET
05 10 50 D>S
10 20 40 D>S
15 30 30 D=S
20 40 20 D<S
25 50 10 D<S
EQUILIBRIUMEQUILIBRIUM
MICRO Economics GRAPHICAL
EQUILIBRIUMGRAPHICAL
EQUILIBRIUM
PRICE=15
QD=QS30
equilibrium
demand
supply
MICRO Economics Market SurplusMarket Surplus
A market surplus is the amount by which the quantity supplied exceeds the quantity demanded at a given price – excess supply.
A market surplus is created when the seller’s asking prices are too high.
When prices are high so demand will go down and ultimately demand and supply equality will be attained.
MICRO Economics Market ShortageMarket Shortage
A market shortage is the amount by which the quantity demanded exceeds the quantity supplied at a given price – excess demand.
In market shortage the prices will go up and ultimately will led to more supply.
Thus equilibrium is the situation where both consumers as well as producers are agreed (acceptable situation)and price is settled.
MICRO Economics
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D
S Price
Quantity
PE
QE
PE and QE represent the equilibrium price and quantity
MICRO Economics
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What is Equilibrium Price?
The price that equates the quantity demanded and the quantity supplied
MICRO Economics
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What happens if price is below equilibrium?
A shortage, or excess demand, arises
MICRO Economics
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D
S
P2
40
QDQS
At P2, QD > QS, thus a shortage or excess demand exists
Shortage
MICRO Economics
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How is the shortage eliminated?
The price rises, leading to a decrease in quantity demanded and an increase in quantity supplied.
MICRO Economics
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What happens if price is above equilibrium?
A surplus, or excess supply, arises
MICRO Economics
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D
SP1
Surplus
43
QDQS
At P1, QD < QS, thus a surplus or excess supply exists
MICRO Economics
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How is the surplus eliminated?
The price falls, leading to a decrease in quantity supplied and an increase in quantity demanded.
MICRO Economics
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D
SP3
Q3
P1 Surplus
P2
Shortage
45©©1999 South-Western College Publishing
Summary, shortages, surpluses, and equilibrium
MICRO Economics
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Summary, supply changes
Increased supply, price falls, quantity rises Decreased supply, price rises, quantity falls
MICRO Economics Objective QuestionsObjective Questions
Which one is increasing function of price
1.Demand
2.Supply
3.Consumption
It describe the law of supply
1.Supply curve
2.Supply equation
3.Supply schedule
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MICRO Economics Questions Questions
Supply curve will shift when
1.Price falls
2.Price falls
3.Technological change
supply curve explain as
1.The relationship between price and supply
2.The relationship between price and demand
3.The relationship between price and profit
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MICRO Economics Questions Questions
If tax rate increase than what happen to supply
1.Supply line will Extended
2.Supply line Contracted
3.Supply line shift leftward
4.Supply line will shift rightward
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MICRO Economics
If population increase than supply line
1. Extension
2. contraction
3. Rightward shift
4. Leftward shift
What will best explain a shift in the market supply curve to right
1. An advertisement successful promote the good
2. A new technique makes it cheaper to produce
3. The government introduce new tax
4. The price of raw materials increase 50 / 99