1 Aggregate Supply CHAPTER 11 © 2003 South-Western/Thomson Learning.
Supply and Demand Supply © 2002 by Nelson, a division of Thomson Canada Limited.
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Transcript of Supply and Demand Supply © 2002 by Nelson, a division of Thomson Canada Limited.
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Supply and Supply and DemandDemand
Supply and Supply and DemandDemand
SupplySupply
©© 2002 by Nelson, a division of Thomson Canada Limited 2002 by Nelson, a division of Thomson Canada Limited©© 2002 by Nelson, a division of Thomson Canada Limited 2002 by Nelson, a division of Thomson Canada Limited
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 2
SUPPLYSUPPLY
• 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.
• 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.
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 3
Determinants of SupplyDeterminants 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
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 4
1) Price1) 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.
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 5
The Supply Schedule and the The Supply Schedule and the Supply CurveSupply 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”
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 6
Table 4-4: Ben’s Supply ScheduleTable 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 ($)
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 7
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones
6 8 10 120 2
1.50
1.00
1
2.00
3 4
$3.00
2.50
5
0.50
Figure 4-5: Ben’s Supply CurveFigure 4-5: Ben’s Supply Curve
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 8
Market Supply ScheduleMarket Supply Schedule
• Market supply is the sum of all individual supplies at each possible price.
• Graphically, individual supply curves are summed horizontally to obtain the market demand curve.
• Assume the ice cream market has two suppliers as follows…
• Market supply is the sum of all individual supplies at each possible price.
• Graphically, individual supply curves are summed horizontally to obtain the market demand curve.
• Assume the ice cream market has two suppliers as follows…
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 9
53.00
00.50
00.00
BenPrice of Ice-cream
Cone ($)
Table 4-5: Market supply as the Sum of Table 4-5: Market supply as the Sum of Individual SuppliesIndividual 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
=
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 10
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones
S3
S2S1
Decrease in supply
Increase in supply
Figure 4-7: Shifts in the Supply CurveFigure 4-7: Shifts in the Supply Curve
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 11
Table 4-6: The Determinants of Quantity Table 4-6: The Determinants of Quantity SuppliedSupplied
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 12
SummarySummary
• 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.
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Mankiw et al.: Principles of Microeconomics, 2nd Canadian edition. Chapter 4: Page 13
The EndThe End