MARKET

DEMAND &
MARKET
SUPPLY

APPLIED ECONOMICS
Prepared by
Ma. Felisa T. Valencia
1.3
LAW OF
SUPPPLY
APPLIED ECONOMICS
Prepared by
Ma. Felisa T. Valencia
 SUPPLY
–is the amount of goods and services
that producers (the source) are
willing to sell at a specific time and
place at alternative prices.
–Producers must have the desire to SELL
and the CAPABILITY to meet the
quantity of goods and services that
consumers actually demand.
– STOCK is the amount of goods
available at the producer’s disposal at a
specific point in time at a given price
 There maybe times when
producers would not want to sell
even if they have enough stock. What
factor therefore influences producers
to offer or not their products on the
market?
PRICE – is the monetary
value per unit of a
commodity at which a
buyers are willing to buy
and sellers sell.
 LAW OF SUPPLY
– Demonstrates the direct or positive relation
between price and quantity of goods that
producers are willing to supply; “ As price
increases, the quantity of goods that producers
are willing to supply increases; as price
decreases the quantity of goods that producers
are willing to supply decreases. ”
 A higher price motivates producers to
put their goods in the market while a low
price discourages them. A higher price
means higher revenue .
Revenue- is payment received by the
producer from sale of the goods.
 LAW OF SUPPLY
P

0 QS
 SUPPLY FUNCTION

-expressed in terms of mathematical

equation as follows

QS = 10 + 5P
 SUPPLY SCHEDULE
TONYO’S SUPPLY SCHEDULE FOR CHICHARON
PRICE PER PACK QUANTITY
• A supply schedule is a table
SUPPLIED showing how much of a product
firms will supply at different
1 0 prices.
1.75 10
• Quantity supplied represents the
2.25 20 number of units of a product that a
3 30 firm would be willing and able to
offer for sale at a particular price
4 45
during a given time period.
5 45
 SUPPLY CURVE
TONYO’S SUPPLY CURVE FOR CHICHARON
P
6

5
• A supply curve is a graph
4
illustrating how much of a
3
product a firm will supply at
2
different prices at a certain
1
point in time, ceteris paribus
0
0 10 20 30 40 50 Qs
SUPPLY SCHEDULE
Qs = -10 + 5P
PRICE PER BOTTLE QUANTITY SUPPLIED

0 -10
2 0
3 5
15 65
20 90
 DETERMINANTS OF SUPPLY
3.THE PRICE OF
1. RESOURCE RELATED GOODS OR
2.TECHNOLOGY PRICE OF
COST COMPETING
PRODUCTS

4.FIRMS’S
EXPECTATIONS 5. NUMBER OF 6. TAXES AND
ABOUT FUTURE SUPPLIERS SUBSIDY
PRICES
1. RESOURCE COST has as
inverse relation to supply.
High payment for land, labor,
capital and entrepreneur
discourages sellers hence there
will be a decrease in supply.
2. TECHNOLOGY- has direct
relation to supply. An
improved technology
encourages producers hence
there will be an increase in
price.
3. PRICES OF RELATED GOOD
AND SERVICES for competing
products- has an inverse relation
to supply. Most producers have
option to produce a variety of
goods, so changes in the prices of
potential products can influence
the supply of current goods.
4. FIRM’S EXPECTATIONS
ABOUT FUTURE PRICES –
has inverse relation to supply.
As the price of a product is
expected to increase, traders
tend to hoard, hence, there
will be a decrease in supply.
5. NUMBER OF SUPPLIER
has direct relation to
supply. The more number
of sellers, the higher the
supply.
6.TAXES AND SUBSIDY and
GOVERNMENT REGULATIONS-
has inverse and direct relation
to supply respectively.
Government creates favorable
policies that will suit the needs of
both producers and consumers.
1.3
CHANGE IN
SUPPPLY

APPLIED ECONOMICS
Prepared by
Ma. Felisa T. Valencia
CHANGE IN QUANTITY SUPPLIED
• A change in supply is not
the same as a change in
quantity supplied.

• In this example, a higher

PRICE causes higher
quantity supplied, and a
move along the demand
curve.
CHANGE IN SUPPLY

• In this example, changes

in determinants of
supply, other than
price, cause an increase
in supply, or a shift of
the entire supply curve,
from SA to SB.
CHANGE IN SUPPLY

• When supply shifts

to the RIGHT,
supply increases.
This causes quantity
supplied to be
greater than it was
prior to the shift, for
each and every price
level.
CHANGE IN SUPPLY

• When supply shifts

to the LEFT, supply
decreases. This
causes quantity
supplied to be lesser
than it was prior to the
shift, for each and
every price level.
 CHANGE IN SUPPLY VS
CHANGE IN QUANTITY SUPPLIED
Change in price of a good or service
leads to
Change in quantity supplied
(Movement along the curve).

Change in costs, input prices, technology,

or prices of related goods and services
leads to Change in supply
(Shift of curve).