03. Supply

Introduction to Microeconomics

  • Context: Lecture content from Munster Technological University, focusing on the concept of supply.

Learning Outcomes

  • After engaging in the lecture and assigned readings, students should:

    • Define and illustrate the Law of Supply.

    • Explain causes of changes in supply and quantity supplied.

    • Understand the relationship between demand and supply in market equilibrium.

Definition of Supply

  • A firm that supplies a good must:

    • Have the necessary resources and technology.

    • Be able to profit from production.

    • Have a solid plan for production.

  • Quantity Supplied: The specific amount of a good that producers are prepared to sell at a given price during a specific time frame.

Law of Supply

  • The Law of Supply indicates that:

    • An increase in price results in increased quantity supplied.

    • A decrease in price results in decreased quantity supplied, holding all else constant.

  • Supply Schedule: A table listing the quantity of a product that producers are willing to supply at various prices over time.

  • Example Supply Schedule:

    • Price (€/unit): 5, 10, 15

    • Quantity Supplied: 50, 100, 150

Supply Curves

  • Supply Curve: Graphical representation showing the relationship between price and quantity supplied.

    • Typically slopes upward from left to right, demonstrating a positive correlation between price and quantity supplied.

Changes in Supply

  • Changes in supply can be caused by factors such as:

    1. Costs of Production: Higher production costs can reduce supply (shift left); lower costs can increase supply (shift right).

    2. Government Regulations: Taxes decrease supply (shift left); subsidies can increase supply (shift right).

    3. Expectations of Future Prices: Anticipated price changes affect current supply levels.

    4. Nature and Random Shocks: Unexpected events like weather changes influence supply.

    5. Number of Suppliers: An increase in suppliers typically increases overall supply.

    6. Technology: Advances can improve production efficiency, increasing supply.

Equilibrium in the Market

  • Market Equilibrium: Occurs where quantity demanded equals quantity supplied (Qd = Qs), establishing a stable market price.

  • Equilibrium Price: The price at which Qd and Qs meet.

  • Equilibrium Quantity: The quantity bought and sold at equilibrium.

Excess Demand and Supply

  • Situations arise when:

    • Excess Demand: When prices fall below equilibrium, demand exceeds supply.

    • Excess Supply: Occurs when prices rise above equilibrium, leading to surplus supply.

Practical Application

  • To analyze market changes, students might consider how factors like population growth, regulatory changes, or shifts in consumer preferences affect supply and demand, thereby shifting equilibrium.