Overview
This lecture covers the concept of supply in economics, distinguishing between supply and quantity supplied, explaining the law of supply, and discussing factors that shift the supply curve.
Supply vs. Quantity Supplied
- Supply refers to the overall relationship between price and the amount sellers are willing and able to offer.
- Quantity supplied is the specific amount sellers are willing and able to sell at a given price.
- The law of supply states there is a positive relationship between price and quantity supplied: as price increases, quantity supplied increases.
Individual and Market Supply
- An individual supply curve shows the quantity supplied by one seller at various prices.
- Market supply is found by horizontally summing the individual supply curves of all sellers.
Movements vs. Shifts in Supply
- Changes in price cause movement along the supply curve (change in quantity supplied).
- A shift in the supply curve is caused by non-price factors and reflects a change in supply.
Factors That Shift the Supply Curve
- Input prices: Lower input costs increase supply; higher input costs decrease supply.
- Technology: Improved technology reduces production costs and increases supply.
- Number of sellers: More sellers increase supply; fewer sellers decrease supply.
- Expectations: If sellers expect higher future prices, they may decrease current supply.
Examples & Common Mistakes
- A change in the product's price does not shift the supply curve, it changes quantity supplied.
- Technological advances that lower production cost shift the supply curve to the right (increase supply).
- Changes in the price of substitute goods affect demand, not supply.
Key Terms & Definitions
- Supply — The relationship between price and the total amount sellers are willing and able to sell.
- Quantity Supplied — The specific amount a seller is willing and able to sell at a particular price.
- Law of Supply — Principle stating that as price increases, quantity supplied increases.
- Input Prices — Costs of resources used to produce a good.
- Technology — Advances that affect production efficiency and costs.
- Market Supply — Total quantity supplied by all sellers in the market.
Action Items / Next Steps
- Review the four main factors that shift the supply curve: input prices, technology, number of sellers, and expectations.
- Practice distinguishing between changes in supply and changes in quantity supplied with example questions.