Supply Curve

1
Supply Curve

• Properly, it will be a general curve with
  positive slopes in the first quadrant.
• At times the curve may show a step function
• Exercise when might this happen?
• Supply curves exist for individual suppliers and
  the supply market

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
2
Change in Supply

• A shift in the supply curve or a situation in
  which different quantities are offered at all
  previous prices.
• Factors affecting supply anything other than
  price that determines the amount of a product
  that producers are willing and able to offer.

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
3
Factors affecting Supply

• Price of resources
• labour
• land
• capital
• raw materials
• Management skills
• Technology
• Marketing
• Production techniques
• Expectations

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
4
Markets

• Exercise what is the major characteristic of
  weekend markets?
• Market any area in which price of products or
  services tend towards equality through the
  continuous negotiations of buyers and sellers.

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
5
Markets

• Free Market a markets where there is no
  artificial control
• e.g. absence of cartels, government regulation
• Perfect Market a (free) market in which there
  are enough buyers and sellers so that no single
  buyer or seller can influence price.

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
6
Equilibrium

• The Law of One Price exists in a perfect market.
  After the market forces of supply and demand
  reach equilibrium, a single price for a commodity
  prevails.

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
7
Imbalance

• Surplus the amount by which quantity supplied
  exceeds quantity demanded when the price in the
  market is too high.
• Shortage the amount by which quantity demanded
  exceeds quantity supplied when the price in a
  market is too low.

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
8
Prices, Supply Demand

• Rationing Prices are rationing devices the
  equilibrium price rations out the limited amount
  of a product produced by the most willing and
  able suppliers, or sellers, to the most willing
  and able demanders, or buyers.

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
9
Equilibrium, Supply Demand

• The equilibrium price (and quantity) is
  determined from the intersection of the supply
  and demand curves.
• One can also investigate graphically the effects
  on equilibrium quantity and price of change in
  demand (or supply or both)

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
10
Other Considerations

• Static nature of models vs
  Dynamic nature of markets

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
11
Other Considerations

• Price control (government) intervention in the
  natural functioning of supply and demand
• Price ceiling a maximum legal price established
  (by government) to protect buyers
• can lead to shortages, black market (examples?)
• Price floor a minimum legal price established
  (to protect sellers)
• can lead to surpluses (suggest examples)

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering
12
Other Considerations

• There can be other distortions to the free
  operation of markets that can lead to surpluses
  (in particular) and shortages
• e.g. farm subsidies, quotas, tariffs, import
  duties

Dr Alan J. R. Smith Mechanical and Manufacturing
Engineering