unit 2 supply
TRANSCRIPT
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Chapter 3
Supply
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Overview of Supply
Law of Supply
Supply Curve
Equilibrium Relationship between Demand and
Supply
Elasticity of Supply and its Types
Factors Influencing Supply
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The Law of Supply
The law of supply holds that other
things equal, as the price of a good
rises, its quantity supplied will rise,
and vice versa.
Why do producers produce more
output when prices rise?
They seek higher profits
They can cover higher marginalcosts of production
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Supply Curve
The supply curve has a positive slope, consistent with
the law of supply.
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Equilibrium
In economics, an equilibrium is a situation in
which:
there is no inherent tendency to change,
quantity demanded equals quantity supplied, and
the market just clears.
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Equilibrium
Equilibrium occurs at a price of $3 and a quantity of 30
units.
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Shortages and Surpluses
Ashortage occurs when quantity demanded
exceeds quantity supplied.
A shortage implies the market price is toolow.
Asurplus occurs when quantity supplied
exceeds quantity demanded.
A surplus implies the market price is toohigh.
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Shift in the Supply Curve
A change in any variable other than
price that influences quantity
supplied produces ashift in the
supply curve or a change in supply.
Factors that shift the supply curve
include:
Change in input costs
Increase in technology
Change in size of the industry
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Shift in the Supply Curve
For an given rental price, quantity supplied is now lower
than before.
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Elasticity of Supply
Elasticity of Supply is the degree of
responsiveness of change in supply to change
in price on the part of sellers.Proportionate Change in Qty Supplied
Elasticity of Supply = ------------------------------
Proportionate Change in Price
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Types ofElasticity of Supply
Types ofElasticity of
Supply
Numerical Value of
Coeff ofElasticity of
Supply
Verbal Description
1.Perfectly Elastic Supply Infinity Sellers are prepared to sell all they
can at the same price and none at alleven at a slightly lower price
2.Perfectly Inelastic Supply Zero Quantity supplied does not change
as a price change
3.Relatively Elastic Supply >1< infinity Quantity supplied changes by a large
percentage than price
4.Relatively Inelastic Supply Zero Quantity Supplied Changes by a
smaller percentage than price
5.Unitary Elastic Supply One Quantity Supplied Changes by
exactly the same percentage as price
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Factors Affecting Supply
1.Supply Depends on Price
2.Cost of production
3.Price of Other Products4.Change in Technology
5.Objective of the firm(eg Sales Maximisation
Rule)
6.Inflation
7.Imposition of Taxes by the Government8.Improvement in the means of Communication
9.Political Factors
10.Element of time and other factors/inputs.
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Thank You
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