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1.5 Supply

3 min readjanuary 24, 2023

J

Jeanne Stansak

I

Isabela Padilha Vilela

J

Jeanne Stansak

I

Isabela Padilha Vilela

Unit 1 -

Definition of

is the different quantities of goods and services that firms are willing and able to produce at various price levels. Understanding the relationship between and demand is crucial to determine the equilirium price. 🏷

vs.

is the amount of a good or service that is produced at a particular price level.

Below is a curve. is one point on the curve (i.e. A, B, or C), and is the entire line, including all of the points that create it.

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-au8cCGqzufaU.png?alt=media&token=49ce30ee-a81f-4db9-8c12-5391e8b44550

Law of

The law of states that the relationship between the price level and the quantity demanded of a good or service is direct, or positive. As the price level rises, firms are more willing or more able to produce a greater quantity, and, therefore, produce more. As the price level falls, firms are less willing or less able to produce the same quantity, and, therefore, produce less.

In summary:

  • When price level increases, the quantity of a good supplied increases.
  • When price level decreases, the quantity of a good supplied decreases.

Using the chart above, when the price rises from P1 to P2, the increases from 2 units to 8 units. When the price drops from P3 to P2, the decreases from 12 units to 8 units.

💡The only thing that changes is the price of the good or service.

Let's take a look at another graph:

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-QdHIZUsCDUGJ.svg?alt=media&token=eeaa7cee-caf5-4e0b-b99f-2c582cd62705

In the graph above, it is possible to observe that point 🅰️ has a price of $100 and a of 50.

When the price increases from $100 to $110 at point 🅱️ the also increases to 90. This exemplified the positive relationship between and price.

Determinants are factors that can cause the entire curve to increase or decrease. When there is an increase in (see graph below), the curve will shift to the right. At every price level, there is an increase in . When there is a decrease in (see graph below), the curve will shift to the left. At every price level, there is a decrease in .

Image Courtesy of Revision World

There are several that cause the shift to the right (increase in ) or the shift to the left (decrease in ). We are going to use the acronym R-O-T-T-E-N as a way to remember all of the determinants.

  • R - Resources

  • O -

  • T -

  • T -

  • E -

  • N -

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-ZoruSwQuddU4.png?alt=media&token=b9e9ed35-071d-470d-b19e-8c66a86300b6

If increases (shift to the right) it could be due to the following changes:

  • R - Resources increase ⬆️

  • O - ' decrease ⬇️

  • T -  (and other government regulations) decrease ⬇️

  • T -  increases ⬆️

  • E -  increase  ⬆️

  • N -  decrease ⬇️

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-czqY5dRoPnlf.png?alt=media&token=2d227d2d-8119-488b-be82-9583ce149a55

If decreases (shift to the left) it could be due to the following changes:

  • R - Resources decrease ⬇️

  • O - ' increase ⬆️ 

  • T -  (and other government regulations) increase ⬆️

  • T -  decrease ⬇️

  • E -  decrease ⬇️ 

  • N -  increase ⬆️

💡Remember: A change in and a shift in are two distinct transformations. A decrease or increase of happens due to a variety of factors, whereas the change in happens solely due to a change in price.

Key Terms to Review (9)

Determinants of Supply

: Determinants of supply are factors other than price that influence producers' willingness and ability to offer goods or services for sale.

Equilibrium Price

: Equilibrium price is the market-clearing price where demand equals supply. It is determined by finding the intersection point on a graph where both curves intersect.

Expectations of the Supplier

: Expectations of the Supplier refer to the anticipated future conditions that a supplier considers when making production decisions, such as changes in input prices or demand for their product.

Number of Competitors

: Number of Competitors refers to the quantity of firms operating within a specific market, offering similar products or services and competing for customers.

Other Good Prices

: Other good prices refer to the prices of goods and services that are not the main focus of analysis. These prices are important because they can influence consumer behavior and overall market conditions.

Quantity Supplied

: Quantity supplied refers to the specific amount of a good or service that producers are willing and able to sell at a particular price during a given time period.

Supply

: Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at different price levels. It is determined by factors such as production costs, technology, resource availability, and government regulations.

Taxes

: Taxes refer to compulsory payments imposed by governments on individuals or businesses based on their income or consumption. They serve as a major source of government revenue and can impact economic behavior.

Technology

: Technology refers to the application of scientific knowledge or methods for practical purposes. It includes inventions, innovations, and improvements that enhance productivity.

1.5 Supply

3 min readjanuary 24, 2023

J

Jeanne Stansak

I

Isabela Padilha Vilela

J

Jeanne Stansak

I

Isabela Padilha Vilela

Unit 1 -

Definition of

is the different quantities of goods and services that firms are willing and able to produce at various price levels. Understanding the relationship between and demand is crucial to determine the equilirium price. 🏷

vs.

is the amount of a good or service that is produced at a particular price level.

Below is a curve. is one point on the curve (i.e. A, B, or C), and is the entire line, including all of the points that create it.

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-au8cCGqzufaU.png?alt=media&token=49ce30ee-a81f-4db9-8c12-5391e8b44550

Law of

The law of states that the relationship between the price level and the quantity demanded of a good or service is direct, or positive. As the price level rises, firms are more willing or more able to produce a greater quantity, and, therefore, produce more. As the price level falls, firms are less willing or less able to produce the same quantity, and, therefore, produce less.

In summary:

  • When price level increases, the quantity of a good supplied increases.
  • When price level decreases, the quantity of a good supplied decreases.

Using the chart above, when the price rises from P1 to P2, the increases from 2 units to 8 units. When the price drops from P3 to P2, the decreases from 12 units to 8 units.

💡The only thing that changes is the price of the good or service.

Let's take a look at another graph:

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-QdHIZUsCDUGJ.svg?alt=media&token=eeaa7cee-caf5-4e0b-b99f-2c582cd62705

In the graph above, it is possible to observe that point 🅰️ has a price of $100 and a of 50.

When the price increases from $100 to $110 at point 🅱️ the also increases to 90. This exemplified the positive relationship between and price.

Determinants are factors that can cause the entire curve to increase or decrease. When there is an increase in (see graph below), the curve will shift to the right. At every price level, there is an increase in . When there is a decrease in (see graph below), the curve will shift to the left. At every price level, there is a decrease in .

Image Courtesy of Revision World

There are several that cause the shift to the right (increase in ) or the shift to the left (decrease in ). We are going to use the acronym R-O-T-T-E-N as a way to remember all of the determinants.

  • R - Resources

  • O -

  • T -

  • T -

  • E -

  • N -

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-ZoruSwQuddU4.png?alt=media&token=b9e9ed35-071d-470d-b19e-8c66a86300b6

If increases (shift to the right) it could be due to the following changes:

  • R - Resources increase ⬆️

  • O - ' decrease ⬇️

  • T -  (and other government regulations) decrease ⬇️

  • T -  increases ⬆️

  • E -  increase  ⬆️

  • N -  decrease ⬇️

https://firebasestorage.googleapis.com/v0/b/fiveable-92889.appspot.com/o/images%2F-czqY5dRoPnlf.png?alt=media&token=2d227d2d-8119-488b-be82-9583ce149a55

If decreases (shift to the left) it could be due to the following changes:

  • R - Resources decrease ⬇️

  • O - ' increase ⬆️ 

  • T -  (and other government regulations) increase ⬆️

  • T -  decrease ⬇️

  • E -  decrease ⬇️ 

  • N -  increase ⬆️

💡Remember: A change in and a shift in are two distinct transformations. A decrease or increase of happens due to a variety of factors, whereas the change in happens solely due to a change in price.

Key Terms to Review (9)

Determinants of Supply

: Determinants of supply are factors other than price that influence producers' willingness and ability to offer goods or services for sale.

Equilibrium Price

: Equilibrium price is the market-clearing price where demand equals supply. It is determined by finding the intersection point on a graph where both curves intersect.

Expectations of the Supplier

: Expectations of the Supplier refer to the anticipated future conditions that a supplier considers when making production decisions, such as changes in input prices or demand for their product.

Number of Competitors

: Number of Competitors refers to the quantity of firms operating within a specific market, offering similar products or services and competing for customers.

Other Good Prices

: Other good prices refer to the prices of goods and services that are not the main focus of analysis. These prices are important because they can influence consumer behavior and overall market conditions.

Quantity Supplied

: Quantity supplied refers to the specific amount of a good or service that producers are willing and able to sell at a particular price during a given time period.

Supply

: Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at different price levels. It is determined by factors such as production costs, technology, resource availability, and government regulations.

Taxes

: Taxes refer to compulsory payments imposed by governments on individuals or businesses based on their income or consumption. They serve as a major source of government revenue and can impact economic behavior.

Technology

: Technology refers to the application of scientific knowledge or methods for practical purposes. It includes inventions, innovations, and improvements that enhance productivity.


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AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.


© 2024 Fiveable Inc. All rights reserved.

AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.