MACROECONOMICS

Midterm
SUPPLY
• All things held constant, supply is the willingness of seller to
manufacture and sell a good or product at various possible prices.

• Supply centers on the relationship between the price and the quantity
supplied.

• LAW OF SUPPLY – the price and quantity supplied are directly

proportional. If the price of a particular product is high, the quantity
supplied will also be high, ceteris paribus.
SUPPLY
Supply Schedule for Rice

Point Price Quantity (kg)

F 20 100
G 40 200
H 60 300
I 80 400
J 100 500

Draw the supply curve for rice

SUPPLY
Conclusion:

As the price goes up, the quantity demanded or the consumer’s

willingness to sell the product also increases, holding all other factors
constant.
SUPPLY
• Getting the Slope of the Supply Curve

Slope S = Change in P
Change in Qs

Slope S = P2-P1
Qs2-Qs1
SUPPLY
• Getting the Slope of the Supply Curve

Slope S = 60 – 80 / 100 – 0
Slope S = 20 / 100
Slope S = 0.2

The price elasticity of supply determines if the supply curve is steep or

flat.
SUPPLY
• Unitary Elastic Supply Curve Quantity Price
0 0

% Change in P = % Change in Qs 1 1

Eps = 1 2 2
3 3
4 4
5 5

Draw the unitary elastic supply curve

SUPPLY
• Unitary Elastic Supply Curve

Eps = Qs2 – Qs1 / Average Qs

P2 – P1 / Average P
Eds = 1, unitary elastic or unit elastic
SUPPLY
• Relatively Inelastic Supply Curve Quantity Price
0 0

% Change in P > % Change in Qs 1 10

Epd < 1 3 20
7 40
12 80
18 160

Draw the relatively inelastic supply curve

SUPPLY
• Relatively Inelastic Supply Curve

Eps = Qs2 – Qs1 / Average Qs

P2 – P1 / Average P
Eds = 0.6, inelastic
SUPPLY
• Relatively Elastic Supply Curve Quantity Price
0 0

% Change in P < % Change in Qs 2 1

Epd = 1 4 2
8 3
16 4
32 5

Draw the relatively elastic supply curve

SUPPLY
• Relatively Elastic Supply Curve

Eps = Qs2 – Qs1 / Average Qs

P2 – P1 / Average P
Eds = 3.01, elastic
SUPPLY
• Perfectly Elastic Supply Curve Quantity Price
0 5

Eps = Infinity 2 5
4 5
6 5
8 5
10 5

Draw the relatively elastic supply curve

SUPPLY
• Perfectly Elastic Demand Curve

Eps = Qs2 – Qs1 / Average Qs

P2 – P1 / Average P
Eds = 2/0, infinity, perfectly elastic
SUPPLY
• Perfectly Inelastic Supply Curve Quantity Price
3 0

Eps = 0 3 2
3 4
3 6
3 8
3 10

Draw the perfectly inelastic supply curve

SUPPLY
• Perfectly Inelastic Supply Curve

Eps = Qs2 – Qs1 / Average Qs

P2 – P1 / Average P
Eds = 0/2 or 0, perfectly inelastic
SUPPLY
• Shifts in Supply and its Determinants
Quantity supplied is frequently dictated by the changes in price.
However, other factors also influence supply. There are cases in which
the supply curve shifts either to the left or to the right due to the
following:

1. Price of the inputs or cost of producing the good

- If one or more input prices decrease, the supply curve shifts to the
right because it becomes cheaper to produce the said good.
SUPPLY
• Shifts in Supply and its Determinants
2. Technology - Efficient production through the use of state-of-the-
art equipment shifts the supply curve to the right because of an
increase in output.

3. Taxes and Subsidies / Government Involvement

4. Number of sellers or firms in the industry

5. Future expectations
SUPPLY
• Shift of the supply curve to the right represents an increase in supply.
• Shift of the supply curve to the left means a decrease in supply.

WHAT HAPPENS TO THE SUPPLY FOR A PRODUCT WHEN THE PRICE

INCREASES?
- Supply stays the same, but the quantity supplied increase. The
change in price only affects quantity supplied.

Price changes the quantity supplied (move along the curve)

The shifters change the supply (moves the entire curve)
QUIZ
no. 3