Supply Flashcards
supply
the quantity of goods and services that firms are ready and willing to sell at a given price within a given period of time, other factors being held constant (ceteris paribus).
supply(2)
– products made available for sale by firms.
– Sellers normally sell at higher price than at
a lower price
– Higher price results to higher profits
Law of Supply
states that if the price of a good or service goes up, the quantity supplied for such good or service will also go up. If the price of the good or service goes down, the quantity supplied will also go down, in ceteris paribus.
Supply Function
A supply function is a form of mathematical notation that
links the dependent variable, quantity supplied (Qs), with
various independent variable that determine the quantity
supplied.
Mathematical function for supply:
Qs = f (product’s own price, number of
sellers, price of factor
input, technology, etc.)
Demand equation:
Qs = c + dP where: Qs = quantity supplied at a particular price c = intercept of the supply curve d = slope of the supply curve P = price of the good sold
Change in quantity supplied
- brought about by an increase or
decrease in the product’ s own price;
movement from one point to another
along the same supply curve
Change in
Supply
- the entire supply curve shift to the
rightward or leftward. At the same price,
therefore, less (or more) quantities of a
good or service are supplied by producers
or sellers
Market Equilibrium, d efi n ed:
• a situation where quantity demanded equal quantity
supplied.
• The general agreement of the buyer and the seller in
exchange of goods and services at a particular price and a
particular quantity
• In an equilibrium there are no shortages or surpluses.
Shortage or
excess demand
is a situation in which consumers are willing to buy more than producers are willing to sell. It is measured by the difference between quantity demanded and quantity supplied when price is below th market equilibrium price. In a free market, price must rise to eliminat the shortage. QD>Qs
Surplus or
excess supply
a situation in which producers are willing to sell more than consumers are willing to buy. It is measured by the difference between quantity supplied and quantity demanded when price is above th market equilibrium price. In a free market, price must fall to eliminat the surplus. QD < Q S
Analyzing
Changes in
Equilibrium
Step 1 : Determine whether the event shifts the supply curve or demand curve or both Step 2: Determine which direction the curve shifts (left/right). Step 3: Use the supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.
