Mankiw Ch 4 Supply

Summary

This video covers the concept of supply in economics, contrasting it with demand. It explains the law of supply, which states that as the price of a good increases, the quantity supplied rises. The instructor discusses supply schedules, supply curves, and how to interpret them. Key factors affecting supply shifts, such as input prices, technology, and the number of sellers, are explored. The video also explains how markets reach equilibrium, where supply equals demand, and describes surpluses and shortages, highlighting how prices adjust to restore market balance.

Takeaways

• 💼 Supply is viewed from the seller's perspective, while demand is from the buyer's.
• 📈 The Law of Supply states that as the price of a good rises, the quantity supplied increases, all else being equal.
• 📊 A supply schedule or curve shows the relationship between price and quantity supplied, with the curve typically sloping upward.
• ➕ Market supply is derived by summing individual suppliers' quantities at each price point.
• 🏗 Non-price factors that shift the supply curve include input prices, technology, number of sellers, and expectations.
• 🔧 Lower input prices and technological advancements shift the supply curve to the right, indicating higher supply at each price.
• 🧑‍💻 The number of sellers also affects supply: more sellers increase supply, while fewer sellers reduce it.
• ⏳ Expectations of future prices can lead sellers to adjust current supply, shifting the curve left or right depending on the situation.
• ⚖ Supply and demand curves intersect at the market equilibrium, where quantity supplied equals quantity demanded.
• 🔄 Surpluses (excess supply) push prices down, while shortages (excess demand) push prices up until equilibrium is restored.

Q & A

What is the primary focus when discussing supply as opposed to demand?

When discussing supply, the focus is on the perspective of the sellers or firms, rather than the buyers or consumers, who are the focus in demand discussions.

What is the 'law of supply' and how does it relate to the quantity supplied?

The law of supply states that, all else equal, the quantity supplied of a good rises when the price of the good rises. This means sellers are willing to supply more as the price increases.

How is a supply schedule similar to a demand schedule?

A supply schedule, like a demand schedule, is a table or list that shows various prices and the associated quantity supplied at each price. Both can be represented graphically as curves on a coordinate plane.

What happens to the supply curve when input prices fall?

When input prices fall, it becomes more profitable for firms to produce more, leading to an increase in the quantity supplied at each price. This shifts the supply curve to the right.

How does technological improvement impact the supply curve?

Technological improvements usually reduce production costs or increase production efficiency, allowing firms to supply more at each price. This results in a rightward shift of the supply curve.

What effect does an increase in the number of sellers have on the supply curve?

An increase in the number of sellers raises the overall market supply, resulting in a rightward shift of the supply curve as more sellers contribute to the quantity supplied at each price.

How can expectations about future prices affect current supply?

If sellers expect future prices to be higher, they may reduce current supply to sell more in the future at the higher price, causing a leftward shift of the current supply curve.

What is market equilibrium in terms of supply and demand?

Market equilibrium is the point where the quantity supplied equals the quantity demanded. It is represented on a graph where the supply and demand curves intersect.

What occurs when there is a surplus in the market?

A surplus occurs when quantity supplied exceeds quantity demanded at a given price. Sellers may lower prices to increase sales and reduce the surplus, pushing the market toward equilibrium.

How does the market respond to a shortage?

In the event of a shortage, where quantity demanded exceeds quantity supplied, prices tend to rise. As prices rise, quantity demanded decreases and quantity supplied increases until equilibrium is reached.