APPLIED ECONOMICS

1. Supply
Module 3

2. Supply
It refers to the
quantity of goods
that a seller is
willing to offer for
sale

3. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Supply in
Product/Output
Markets
•Supply decisions
depend on profit
potential.
•Profit
•is the difference
between revenues
and costs.
3 of 48

4. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Quantity Supplied
4 of 48
• represents the number
of units of a product
that a firm would be
willing and able to offer
for sale at a particular
price during a given
time period.
PRICE
(PER
BUSHEL)
QUANTITY
SUPPLIED
(THOUSANDS
OF BUSHELS
PER YEAR)
$ 2 0
1.75 10
2.25 20
3.00 30
4.00 45
5.00 45
CLARENCE BROWN'S
SUPPLY SCHEDULE
FOR SOYBEANS

5. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
5 of 48
• is a table
showing how
much of a product
firms will supply at
different prices.
PRICE
(PER
BUSHEL)
QUANTITY
SUPPLIED
(THOUSANDS
OF BUSHELS
PER YEAR)
$ 2 0
1.75 10
2.25 20
3.00 30
4.00 45
5.00 45
CLARENCE BROWN'S
SUPPLY SCHEDULE
FOR SOYBEANS
Supply Schedule

6. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Supply
Schedule
it shows the
different
quantities
the seller is
willing to sell
at various
prices.

7. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
states that
there is a
positive
relationship
between
price and
quantity of
a good
supplied.

8. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
8 of 48

9. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
9 of 48
Points Quantity Supplied Price
A 40 2
B 60 4
C 80 6
D 100 8
E 120 10

10. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Determinants of Supply
•1. Price Factor
• The price of the good or service.
10 of 48

11. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Shift of Supply Versus
Movement Along a Supply Curve
• A higher price
causes higher
quantity supplied,
and a move along
the demand curve.

12. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Other Determinants of
Supply
•2. Non=Price Factor
•1. The Price of
production inputs or
cost of producing the good,
which in turn depends on:
•The price of required
inputs (labor, capital, and
land) 12 of 48

13. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•2. The technologies
that can be used to
produce the
product.
•3. The prices of
related products.
13 of 48

14. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•4. Taxes – Business
establishments are
required to pay a
number of taxes to
various levels of
government.
14 of 48

15. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
5. Expectation
•The expectation
or anticipation of
what will happen
on the price of
the commodity
can also
influence the
amount supplied
in the market.
15 of 48

16. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Shift of Supply Versus
Movement Along a Supply Curve
16 of 48
• A change in
determinants of supply
other than price causes
an increase in supply,
or a shift of the entire
supply curve, from SA to
SB.

17. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
17 of 48
• The technological
advance means that
more output can be
supplied for at any
given price level.
Shift of Supply Curve for Soybeans
Following Development of a New Seed
Strain

18. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
18 of 48
To summarize:
Change in price of a
good or service
leads to Change in
quantity supplied
(Movement along
the curve).
Shift of Supply Versus
Movement Along a Supply Curve

19. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
19 of 48
To summarize:
Change in costs, input prices,
technology, or prices of
related goods and services
leads to
Change in supply
(Shift of curve).
Shift of Supply Versus
Movement Along a Supply Curve

20. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
From Individual
Supply to Market Supply
•The supply of a
good or service
can be defined
for an individual
firm, or for a
group of firms
that make up a
market or an
industry.
20 of 48

21. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
From Individual
Supply to Market Supply
•Market supply is
the sum of all
the quantities of
a good or
service supplied
per period by all
the firms selling
in the market for
that good or
service.
21 of 48

22. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
MARKET EQUILIBRIUM
22 of 48

23. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
MARKET
EQUILIBRIUM
• When the
supply and
demand curves
intersect, the
market is in
equilibrium.
• This is where
the quantity
demanded and
the quantity
supplied are
equal.
23 of 48

24. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•The intersection of
supply and demand
determines the
equilibrium price and
quantity.
•The equilibrium occurs
where the quantity
demanded is equal to
the quantity supplied.
24 of 48

25. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
Schedule of Market Equilibrium
Points QD Price QS
A 60 30 180
B 90 25 150
C 120 20 120
D 150 15 90
E 180 10 60
25 of 48

26. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• Computation:
•QD = 240 – 6P
•QS = 0 + 6P
•QD = QS
•240 – 6P = 0 + 6P 26 of 48

27. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• Computation:
• 240 – 6P = 0 + 6P
• -6P – 6P = -240 + 0
• - 12P = -240
• -12 P/ 12 = -240/ 12
• P = 20 Price Equilibrium
27 of 48

28. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• QD = 240 – 6P
• QD = 240 – 6 (20)
• QD = 240 – 120
• QD = 120
• Marke
Equilibrium
28 of 48
QS = 0 + 6P
QS = 0 + 6 (20)
QS = 0 + 120
QS= 120

29. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
GRAPH
• P
• 30 Price Equilibrium
• 25
• 20 Market Equilibrium
• 15
• 10
•
• 30 60 90 120 150 180
29 of 48

30. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
ACTIVITY
Points QD Price QS
A 30 15 90
B 45 12 75
C 60 9 60
D 75 6 45
E 90 3 30
30 of 48

31. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
EXCESS OF DEMAND
•If the price is
below the
equilibrium level,
then the quantity
demanded will
exceed the
quantity
supplied.
•Excess demand
or a shortage will
exist.
31 of 48

32. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
EXCESS OF SUPPLY •If the price is
above the
equilibrium level,
then the quantity
supplied will
exceed the
quantity
demanded.
•Excess supply or a
surplus will exist.
32 of 48

33. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
• In either case,
economic pressures
will push the price
toward the
equilibrium level.
•A change in supply,
demand, or both,
will necessarily
change the
equilibrium price,
quantity, or both.
33 of 48

34. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
•It is highly
unlikely that the
change in supply
and demand
perfectly offset
one another so
that equilibrium
remains the
same.
34 of 48

35. C
H
A
P
T
E
R
3:
Demand,
Supply,
and
Market
Equilibrium
© 2004 Prentice Hall Business Publishing Principles of Economics, 7/e Karl Case, Ray Fair
35 of
48