1. Supply and Demand Supply © 2002 by Nelson, a division of Thomson Canada Limited

2. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 2 SUPPLY Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period.

3. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 3 Determinants of Supply What factors determine how much ice cream you are willing to offer or produce? 1) Product’s Own Price 2) Input prices 3) Technology 4) Expectations 5) Number of sellers What factors determine how much ice cream you are willing to offer or produce? 1) Product’s Own Price 2) Input prices 3) Technology 4) Expectations 5) Number of sellers

4. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 4 1) Price Law of Supply –The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises. Law of Supply –The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises.

5. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 5 The Supply Schedule and the Supply Curve  The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.  The supply curve is a graph of the relationship between the price of a good and the quantity supplied.  Ceteris Paribus: “Other thing being equal”  The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.  The supply curve is a graph of the relationship between the price of a good and the quantity supplied.  Ceteris Paribus: “Other thing being equal”

6. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 6 Table 4-4: Ben’s Supply Schedule 53.00 42.50 32.00 21.50 11.00 00.50 00.00 Quantity of cones Supplied Price of Ice-cream Cone ($)

7. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 7 Price of Ice- Cream Cone Quantity of Ice-Cream Cones 681012 0 2 1.50 1.00 1 2.00 3 4 $3.00 2.50 5 0.50 Figure 4-5: Ben’s Supply Curve

8. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 8 Market Supply Schedule Market supply is the sum of all individual supplies at each possible price. Graphically, individual supply curves are summed horizontally to obtain the market demand curve. Assume the ice cream market has two suppliers as follows… Market supply is the sum of all individual supplies at each possible price. Graphically, individual supply curves are summed horizontally to obtain the market demand curve. Assume the ice cream market has two suppliers as follows…

9. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 9 53.00 00.50 00.00 Ben Price of Ice-cream Cone ($) Table 4-5: Market supply as the Sum of Individual Supplies + 8 0 0 Nicholas 13 42.50 32.00 21.50 11.00 6 4 2 0 10 7 4 1 0 0 Market =

10. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 10 Price of Ice- Cream Cone Quantity of Ice-Cream Cones S3S3 S2S2 S1S1 Decrease in supply Increase in supply Figure 4-7: Shifts in the Supply Curve

11. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 11 Table 4-6: The Determinants of Quantity Supplied

12. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 12 Summary The supply curve shows how the quantity of a good supplied depends upon the price. –According to the law of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward. –In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers. –If one of these factors changes, the supply curve shifts. The supply curve shows how the quantity of a good supplied depends upon the price. –According to the law of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward. –In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers. –If one of these factors changes, the supply curve shifts.

13. Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 13 The End