What Is Supply?

In economics, "supply" refers to the

quantity of a good or service that
producers or suppliers are willing and
able to offer for sale in a given market
at different prices over a specific
period of time.
 What Is Supply?

When economists talk

about supply, they mean the
amount of some good or service
a producer is willing to supply at
each price.
Price is what the producer
 LAW OF SUPPLY
The Law of Supply is a fundamental
principle in economics that
describes the relationship between
the price of a good or service and
the quantity that producers are
willing and able to supply.
 LAW OF SUPPLY
"All else being equal, as the
price of a good or service
increases, the quantity supplied
by producers will also increase,
and conversely, as the price
decreases, the quantity
 Supply Schedule
Asupply schedule is a table
that shows the quantity
supplied at each price.
 SUPPLY CURVE

graphic representation of the

relationship between product price and
quantity of product that a seller is
willing and able to supply. Product
price is measured on the vertical axis
of the graph and quantity of product
supplied on the horizontal axis.
 SUPPLY CURVE
To plot a supply curve:
1. Place the price of the item on the vertical,
or y, axis.
2. Put the quantity supplied on the horizontal,
or x, axis.
3. Mark the quantity supplied for each price
with a dot.
4. Connect the dots to plot the supply curve.
A supply schedule
 SUPPLY SHIFTER

A supply shifter, in economics refers to

any factor or variable that can influence
the supply of goods and services in a
market or within a particular industry.
These factors can affect the quantity of
goods and services that producers are
willing and able to supply at various
 SUPPLY SHIFTERS

Ifsomething other than a change

in price happens that affects the
amount supplied at each and every
price point, it’s known as a supply
shifter because it shifts the whole
supply curve left or right.
SUPPLY SHIFTERS
Input Prices: An increase in the
cost of production inputs (e.g., raw
materials, labor, energy) will
decrease supply because it
becomes more expensive for
producers to produce the same
quantity of goods at each price level.
 Government Regulations and Taxes:
Taxes: An increase in taxes on producers or their products can reduce supply
by increasing the cost of production.

Regulations: Stringent regulations can also raise production costs,

decreasing supply.

Subsidies: When the government provides subsidies to producers, it

effectively reduces their production costs. This can lead to an increase in the
supply of the subsidized product. Producers are more willing to supply a larger
quantity at each price level because the subsidy offsets some of their
production expenses.

Shift of the Supply Curve: The subsidy causes the supply curve to shift to
the right, indicating an increase in supply.
Technology: Advances in technology can
reduce production costs, leading to an
increase in supply as producers can now
produce more at a lower cost.
 Increased Productivity:
 Technology can enhance the productivity of labor and capital in various
industries. For example, automation and robotics in manufacturing can
increase the speed and precision of production processes, leading to higher
output per unit of input.
 Advanced machinery, software, and tools can make production more efficient,
reducing the time and resources needed to produce goods. This often results
in an increase in supply because more can be produced with the same or
fewer resources.
 Lower Production Costs:
 Technological innovations can lead to cost reductions in production. For
example, the adoption of energy-efficient equipment can reduce energy costs,
while improved logistics and supply chain management software can lower
transportation and inventory costs.
 Lower production costs encourage producers to supply more goods at each
price level, leading to an increase in supply.
The number of sellers, also known as the
number of firms or competitors, is a
crucial factor that can significantly
influence the supply of goods and
services in a market. The number of
sellers can impact the overall quantity of
a product available, the competitiveness
of the market
Ina market with a large number of sellers,
competition tends to be high. Each firm strives to
gain market share, which can lead to an increase in
supply as firms produce more to meet consumer
demand and compete effectively.
Conversely, in a market with a limited number of
sellers or a monopoly (where there is only one
seller), there is less competitive pressure. In such
cases, supply may be lower than in a competitive
market because there is less incentive to produce
more.
Expectations of the future,
specifically expectations about
future market conditions and
events, can influence the supply
of goods and services in several
ways. Producers and firms often
base their supply decisions on
their predictions and outlook for
•If producers anticipate that the price of a
product will rise in the future, they may
reduce the supply in the present. This is
known as "holding back supply“. By
limiting the current supply, they aim to
take advantage of higher prices in the
future.

•Conversely, if producers expect prices to

fall, they may increase supply in the
Expectations about the
future prices and
availability of other goods,
both complementary and
substitute goods, can
also influence the supply of
a particular product.
 SUBSTITUTE GOODS

•Substitute goods are products that can be used

interchangeably to satisfy a similar need or want.
Expectations about future prices and availability of
substitute goods can influence the supply of a
particular product.

•If producers anticipate that the prices of substitute

goods will increase in the future, they may be more
inclined to increase the supply of their product to take
advantage of potential shifts in consumer preferences
toward their product.
 COMPLEMENTARY GOODS

•Complementary goods are products that are typically used

together. Expectations about future prices and availability
of complementary goods can also impact supply decisions.

•If producers foresee an increase in the prices of

complementary goods in the future, they may increase the
supply of their product, expecting that higher prices for
complementary goods will lead to higher demand for their
product.

•Conversely, if they expect the prices of complementary

goods to fall, they may decrease supply, as they anticipate
 DEMAND

Demand refers to the desire, willingness,

and ability of consumers to purchase a
specific quantity of a good or service at
various prices during a given period of
time.

In simpler terms, it represents how much

of a particular product or service people
are willing to buy at different price levels.
 DEMAND
 Desire:Demand begins with consumers desiring a
product or service. This means they have an interest
in acquiring it.
 Willingness:To create demand, consumers not only
desire the product but are also willing to buy it. This
willingness is influenced by factors such as the
perceived value of the product, preferences, and
needs.
 Ability:
For demand to be effective, consumers must
have the financial means or purchasing power to buy
the product. Having the desire and willingness to
 QUANTITY
DEMANDED
The total number of units
purchased at that price is called
the quantity demanded.
 An increase in the price of a
good or service almost always
decreases the quantity
demanded of that good or
service. Conversely, a decrease
in price will increase the quantity
demanded.
What Is the Law of Diminishing Marginal
Utility?
 The law of diminishing marginal utility
states that all else equal, as
consumption increases, the marginal
utility derived from each additional unit
declines. Marginal utility is the
incremental increase in utility that
results from the consumption of one
additional unit. "Utility" is an economic
term used to represent satisfaction or
 LAW OF DEMAND
The law of demand states that
quantity purchased varies inversely
with price. In other words, the higher
the price, the lower the quantity
demanded.
 DEMAND
SCHEDULE
A demand schedule is a table
that shows the quantity
demanded at each price.
 DEMAND CURVE
A demand curve is a graph that
shows the quantity demanded at
each price. Sometimes the demand
curve is also called a demand
schedule because it is a graphical
representation of the demand
schedule.
 DEMAND CURVE

To plot a demand curve:

1. Place the price of the item on the vertical,
or y, axis.
2. Put the quantity demanded on the
horizontal, or x, axis.
3. Mark the quantity demanded for each price
with a dot.
4. Connect the dots to plot the demand curve.
 DEMAND SHIFTERS
Demand shifters, also known as
determinants of demand, are factors
other than price that can influence the
quantity of a good or service that consumers
are willing and able to purchase at various
price levels.
When any of these factors change, they can
cause the entire demand curve to shift,
leading to an increase or decrease in the
DEMAND SHIFTERS
 PRICE OF RELATED GOODS
Substitutes: Substitutes are goods that can be used in place of
each other to satisfy a similar need or want. When the price of a
substitute good changes, it can have an impact on the demand for
the original product.
 If the price of a substitute good rises, ceteris paribus (all other
factors held constant), consumers are more likely to switch to the
original product because it has become relatively cheaper
compared to the substitute. This increase in demand for the
original product will shift its demand curve to the right (outward).
 Conversely, if the price of a substitute good falls, consumers may
find it more attractive than the original product, leading to a
decrease in demand for the original product. This will shift its
demand curve to the left (inward).
 PRICE OF RELATED GOODS
Substitutes:
 Coffee and Tea: Suppose you are analyzing the market for
coffee. If the price of tea, a close substitute for coffee,
increases significantly due to a poor tea harvest, consumers
may shift their preference towards coffee because it has
become relatively cheaper in comparison. This would lead to
an increase in the demand for coffee.
 iOS and Android Smartphones: Consider the market for
smartphones. If the price of Android smartphones falls
significantly due to increased competition, some consumers
who were considering buying an iOS smartphone may switch to
Android, causing a decrease in the demand for iOS devices.
 PRICE OF RELATED GOODS
Complements: Complements are goods that are typically
consumed together. When the price of a complement good
changes, it can also affect the demand for the original product.
 If the price of a complement good rises, ceteris paribus,
consumers may reduce their consumption of both the original
product and the complement because the combined cost of
the two has increased. This decrease in demand for the
original product will shift its demand curve to the left.
 On the other hand, if the price of a complement good falls,
consumers may be more inclined to consume both the original
product and the complement, leading to an increase in
demand for the original product. This will shift its demand
curve to the right.
 PRICE OF RELATED GOODS
Example: Gasoline and Automobiles
 Gasoline and automobiles are classic examples of
complementary goods. When the price of gasoline rises
significantly:
 Effect on Demand for Gasoline: Consumers may respond by
purchasing less gasoline because it has become more expensive
to fuel their vehicles. This decrease in the price of gasoline can
lead to lower overall gasoline consumption.
 Effect on Demand for Automobiles: Simultaneously, the
higher price of gasoline may discourage some consumers from
buying new automobiles or lead them to consider more fuel-
efficient vehicles (e.g., hybrids or electric cars). This can result in
a decrease in the demand for automobiles.
 PRICE OF RELATED GOODS
Printers and Printer Ink Cartridges
 Printersand printer ink cartridges are complementary
goods. If the price of printer ink cartridges increases
significantly, some consumers may decide to print less
or opt for digital documents instead. This decrease in
the demand for printer ink cartridges could also result
in reduced demand for printers.
 INCOME
The concept of income as a demand shifter refers
to how changes in a consumer's income can
influence their purchasing behavior and,
consequently, the overall demand for goods and
services in an economy. Income is one of the key
factors that can cause shifts in the demand curve,
which is a graphical representation of the quantity
of a good or service that consumers are willing
and able to purchase at different price levels.
Normal Goods: For most goods and services,
as consumers' incomes increase, their ability to
buy more goods also increases. These are
known as normal goods. When consumers'
income rises, they tend to buy more of these
goods at every price level. As a result, the
demand curve for normal goods shifts to the
right, indicating an increase in demand. This
shift is called an "income-induced increase in
demand."
Normal Goods: Example: Bottled Water
 When a consumer's income increases, they
may be more willing to spend on bottled water
because it is a basic necessity. Even at higher
income levels, they continue to purchase
bottled water, so an increase in income leads
to an increase in the demand for bottled water.
Inferior Goods: In contrast to normal goods, there are
inferior goods, which are goods that people buy less of
as their incomes increase. These goods are often of
lower quality or considered less desirable than
alternatives. When consumers' incomes rise, they may
switch to higher-quality substitutes, reducing their
demand for inferior goods. This shift leads to a decrease
in demand for inferior goods as income increases, and
the demand curve shifts to the left. This is known as an
"income-induced decrease in demand."
Inferior Goods: Example: Generic Store-Brand
Canned Soup
 When a consumer's income rises, they may
choose to switch to higher-quality, brand-name
soups over the generic, store-brand canned
soups. As income increases, the demand for
the inferior, store-brand canned soup
decreases, causing a leftward shift in the
demand curve for these products.
Luxury Goods: Luxury goods are those that
people typically consume more of as their
incomes rise. These goods are often associated
with higher status or increased comfort and
enjoyment. When income increases, consumers
tend to buy more luxury goods, leading to an
increase in demand and a rightward shift of the
demand curve.
Luxury Goods: Example: Designer Handbags
 Designer handbags are often considered
luxury goods. As a consumer's income
increases, they may be more likely to purchase
designer handbags as a status symbol or to
enjoy higher-quality craftsmanship. An
increase in income leads to an increase in the
demand for designer handbags, causing a
rightward shift in the demand curve.
It's important to note that the impact of income
on demand can vary across different goods and
services. Some goods may be more income-
sensitive than others, and individual preferences
and circumstances can also play a significant
role in how income affects demand.
Income can act as a demand shifter by
influencing consumers' purchasing behavior.
Changes in income can lead to shifts in the
demand curve for goods and services,
depending on whether the goods are normal,
inferior, or luxury items. Understanding these
income-induced shifts in demand is crucial for
businesses, policymakers, and economists when
analyzing and predicting changes in consumer
behavior and market dynamics.
 NUMBER OF BUYERS
The number of buyers is often considered one of
the factors that can shift the demand curve for a
particular product or service. The demand curve
shows the relationship between the price of a
product and the quantity of that product
consumers are willing and able to buy at
different price levels, assuming all other factors
remain constant.
Increase in Number of Buyers:
 When the number of buyers in a market increases, it
typically leads to an increase in demand for the
product. More people are now interested in buying the
product at various price points.
 This shift in demand results in the demand curve
shifting to the right, indicating a higher quantity
demanded at each price level.
 Asa result, sellers may be able to charge higher
prices, and the equilibrium price and quantity in the
market will both increase.
Example 1: Electric Cars
 Suppose there is a sudden surge in public interest and awareness
regarding environmental issues and a desire to reduce carbon emissions.
As a result, more consumers decide to switch from traditional gasoline-
powered cars to electric cars. This increase in the number of buyers for
electric cars represents an increase in demand.
 Demand Increase:
 More consumers are now interested in buying electric cars at various
price points.
 The demand curve for electric cars shifts to the right, indicating a higher
quantity demanded at each price level.
 As a result, electric car manufacturers can charge higher prices, and the
equilibrium price and quantity of electric cars in the market will both
increase.
 EXPECTATIONS IN THE FUTURE
Expectations in the context of economics and
demand are a critical factor that can shift the
demand curve for a product or service.
Expectations refer to the beliefs and forecasts
that consumers and businesses have about
future economic conditions, prices, and their
own financial situations. These expectations can
significantly impact current consumption and
purchasing decisions, and they are one of the
non-price determinants of demand.
Expected Future Prices: If consumers or
businesses expect that the price of a product
will increase in the future, they may increase
their current demand for that product. This is
because they want to buy it now at a lower price
rather than wait and pay more later. Conversely,
if they expect prices to decrease, they might
reduce their current demand.
Economic Conditions: Expectations about the
overall economic environment can impact
demand. If people anticipate a recession or
economic downturn, they might be more
cautious with their spending, leading to a
decrease in demand for many goods and
services. Conversely, expectations of economic
growth can boost consumer and business
confidence, increasing demand.
 TASTE AND PREFERENCE
Taste and preferences are one of the key
determinants of consumer demand in
economics. They refer to the subjective and
individualized likes and dislikes of consumers
when it comes to goods and services. Changes
in taste and preferences can act as demand
shifters, meaning they can cause the entire
demand curve for a particular product to shift to
the left or right.
Shift to the Right (Increase in Demand): If
consumers' tastes and preferences for a product
improve or become more favorable, it can lead to
an increase in demand for that product. This means
that consumers are now more willing to buy the
product at various price levels. For example, if
there is a sudden health trend promoting the
consumption of organic foods, people's preferences
for organic products may increase, leading to a
rightward shift in the demand curve for organic
foods.
Shift to the Left (Decrease in Demand):
Conversely, if consumers' tastes and
preferences for a product worsen or become
less favorable, it can lead to a decrease in
demand for that product. This means that
consumers are now less willing to buy the
product at various price levels. For example, if a
negative health report emerges about the
health risks associated with a particular type of
food, people's preferences for that food may
 MARKET EQUILIBRIUM

Market equilibrium is a fundamental concept in

economics that describes a state in which the
supply of a particular good or service matches the
demand for that good or service, resulting in a
stable price and quantity traded. In other words, it
is the point at which the quantity of a product that
producers are willing to supply equals the quantity
that consumers are willing to purchase at a
specific price.
 MARKET EQUILIBRIUM

MARKETS: Equilibrium is achieved at the

price at which quantities demanded and
supplied are equal. We can represent a
market in equilibrium in a graph by showing
the combined price and quantity at which
the supply and demand curves intersect.
 Equilibrium Price

The price in a market at which the quantity demanded

and the quantity supplied of a good are equal to one
another; this is also called the “market clearing price.”
Equilibrium Price: This is the price at which the
quantity demanded equals the quantity supplied. It is
the price where buyers are willing to purchase the same
amount that sellers are willing to produce and sell. At
this price, there is no surplus (excess supply) or
shortage (excess demand) in the market.
 Equilibrium Quantity

The quantity that will be sold and purchased at the

equilibrium price

Equilibrium Quantity: This is the quantity of the

product that is bought and sold at the equilibrium price.
It represents the quantity at which the supply and
demand curves intersect.
 MARKET DISEQUILIBRIUM

Whenever markets experience

imbalances—creating disequilibrium
prices, surpluses, and shortages—market
forces drive prices toward equilibrium.
 SURPLUS

When the quantity supplied of a good, service, or

resource is greater than the quantity demanded

A surplus exists when the price is above

equilibrium, which encourages sellers to lower
their prices to eliminate the surplus.
 SHORTAGE

When the quantity demanded of a good, service,

or resource is greater than the quantity supplied

A shortage will exist at any price below

equilibrium, which leads to the price of the good
increasing.
 PRICE ELASTICITY

 Price
elasticity is a concept in economics that
measures the responsiveness of the quantity
demanded or supplied of a good or service to
changes in its price. It is a critical concept in
understanding how changes in price affect the
behavior of consumers and producers in the
market. Price elasticity is often expressed as a
numerical value and can be classified into
several categories based on its magnitude.
 Price Elasticity of Demand (PED):

Price Elasticity of Demand (PED):

 PED measures the responsiveness of the
quantity demanded of a good or service to
changes in its price.
 It is calculated as the percentage change in
quantity demanded divided by the percentage
change in price.
 Elastic Demand

IfPED > 1 (i.e., |PED| > 1), it is

considered elastic demand. This means
that a small change in price will lead to
a proportionally larger change in
quantity demanded.
 Elastic Demand

Elastic Demand (PED > 1):

Example: Bottled water
 Situation:Imagine the price of bottled water rises by
10%. As a result, consumers may significantly reduce
their quantity demanded, perhaps by 20% or more.
This is because bottled water has many substitutes
like tap water, so consumers are sensitive to price
changes and readily switch to alternatives when
prices increase.
 Inelastic Demand

If PED < 1 (i.e., |PED| < 1), it is

considered inelastic demand. In this case,
a change in price leads to a proportionally
smaller change in quantity demanded.
 Inelastic Demand

Inelastic Demand (PED < 1):

 Example: Prescription medication for a life-threatening condition
 Situation: Let's say the price of a crucial medication for a life-
threatening illness increases by 10%. In response, patients who
rely on this medication may only reduce their quantity demanded
by a small percentage, such as 2% or less. This is because there
are no close substitutes, and consumers are willing to pay a
higher price to maintain their health and well-being.
 Unitary Elastic Demand

If PED = 1, it is unitary elastic demand,

indicating that the percentage change in
quantity demanded is exactly equal to the
percentage change in price.
 Unitary Elastic Demand

Unitary Elastic Demand (PED = 1):

 Example: Generic staple foods like rice
 Situation:If the price of generic rice increases by
10%, consumers might reduce their quantity
demanded by an exactly proportionate 10%. In this
case, the percentage change in quantity demanded
perfectly matches the percentage change in price,
resulting in a unitary elastic demand.
 Price Elasticity of Supply (PES):

Price Elasticity of Supply (PES):

PES measures the responsiveness of the
quantity supplied of a good or service to
changes in its price.
It is calculated as the percentage
change in quantity supplied divided by
the percentage change in price.
 Elastic Supply

If PES > 1 (i.e., |PES| > 1), it is considered

elastic supply. This means that a small
change in price will lead to a
proportionally larger change in quantity
supplied.
 Elastic Supply
 Example: Handcrafted artwork
 Situation: Consider a scenario where there's a sudden
surge in demand for handcrafted artwork due to a
popular art exhibition. In response to the increased
demand, artists can produce more artwork relatively
quickly. If the price of their artwork increases by 10%,
artists might increase their quantity supplied by a
proportionally larger amount, say 20% or more. This
indicates that the supply of handcrafted artwork is
elastic because it can be adjusted rapidly in response
to price changes.
 Inelasticity Supply

If PES < 1 (i.e., |PES| < 1), it is considered

inelastic supply. In this case, a change in
price leads to a proportionally smaller
change in quantity supplied.
 Inelasticity Supply

 Inelastic Supply (PES < 1):

 Example: Agricultural products with long cultivation times, like
wine grapes
 Situation: Wine grapes take several years to cultivate and
produce a harvest. If the price of wine grapes decreases by 10%,
grape growers might only reduce their quantity supplied by a
small percentage, such as 2% or less. This is because they can't
easily adjust their grapevine cultivation in the short term, so the
supply is relatively inelastic in response to price changes.
 Unitary Elastic Supply

If PES = 1, it is unitary elastic supply,

indicating that the percentage change in
quantity supplied is exactly equal to the
percentage change in price.
 Unitary Elastic Supply

 Unitary Elastic Supply (PES = 1):

 Example: Custom-made luxury furniture
 Situation:Let's say there's a high-end furniture maker
who creates custom-made luxury furniture pieces. If
the price of their furniture increases by 10%, the
furniture maker might increase their production by an
exactly proportionate 10%. In this case, the
percentage change in quantity supplied perfectly
matches the percentage change in price, resulting in a