Supply

Quantity Supplied• The number of units of a good that all sellers in

the market would choose to sell over some period of time, given the constraints that they face.

Quantity Supplied is Hypothetical

• The definition of quantity supplied makes no assumptions about a firm’s actual ability to sell the goods. It only answers the hypothetical question of how much a firm’s manager believes he could produce for sale, given the constraints the firm has, if the firm was able to sell all that they wanted.

Law of Supply• As the price of a good increases, the quantity

supplied increases.

• In this case, more firms will find it advantageous to jump into the market and offer the same goods for sale.

• Over time, the increased competition and addition of goods or services into the market will drive costs back down.

Supply Schedule• A list showing the quantities of a good or service

that firms would choose to produce and sell at different prices, with all other variables held constant.

Supply Schedule

Supply Curve• A graphical depiction of a supply schedule; a

curve showing the quantity of a good or service supplied at various prices, with all other variables held constant.

Supply Curve

Change in Quantity Supplied

• A movement along the supply curve in response to a change in price.

Change in Quantity Supplied

Change in Supply• A shift in the supply curve in response to some

variable other than price.

Change in Supply

Alternate Goods• Other goods that a firm could produce, using

some of the same types of inputs as the good in question.

Alternate GoodsPolaris Industries was founded in 1954 in Minneapolis, Minnesota, USA

as a manufacturer of snowmobiles.

Over the years, they have branched out to make all sort of ATV’s and even motorcycles.

Alternative Markets• A market other than the one being analyzed in

which the same good could be sold.

• Polaris originally offered their products for sale locally, only in the U.S. Today, you can find their products offered for sale worldwide.

Factors that shift the Supply Curve.

• Input Prices

• A fall in the price of an input causes an increase in supply, shifting the supply curve to the right.

• Price of Alternatives

• When the price for an alternative rises – either an alternative good or the same good in an alternative market - the supply curve shifts to the left.

Factors that shift the Supply Curve.

• Technology

• Cost saving technological advances increase the supply of a good, shifting the supply curve to the right.

Factors that shift the Supply Curve.

• Number of Firms

• An increase in the number of sellers – with no other change – shifts the supply curve to the right.

Factors that shift the Supply Curve.

• Expected Price

• In many markets, an expectation of a future price rise shifts the current supply curve to the left. Similarly, an expectation of a future price drop shifts the current supply curve to the right.

Factors that shift the Supply Curve.

• Changes in weather or other Natural Events

• Favorable weather increases crop yields, and causes a shift to the right of the supply curve for that crop. Unfavorable weather destroys crops and shrinks yields, shifting the supply curve to the left.

Factors that shift the Supply Curve.

• Demand from buyers DO NOT shift the supply curves.

• Buyers may want more of something and through their purchasing habits consume all that is produced, but you will remember that when the supply decreases, prices generally increase. When there is an increase in price, the market becomes more attractive to other firms who will seek to fill the void in supply, and will jump into the market, thereby increasing supply.

Factors that shift the Supply Curve.