Lecture 3 - Law of Supply

Uploaded by OnlineEcon on 08.02.2010

>> All right.
So now we're going to talk about supply.
We've done demand.
Now it's on to supply.
And by definition, the law of supply is
that there is a direct relationship between price
and quantity -- ceteris paribus.
Keep that ceteris paribus in mind.
Right? Nothing else changing.
Right, so all you're allowing to change is price and quantity,
supply looks like it has this kind of curve.
So if the price is set right here,
how much will suppliers make?
Right there.
That will be the quantity that suppliers make.
Remember that supply is really the definition of people
who are doing the selling.
This is the hardest thing to contemplate, other than demand,
because demand is really the buyers,
and usually that's what we are -- buyers.
But in this case, we're sellers.
So think of yourself as a seller.
When the price of a particular good is going up,
you want to sell more of it, because you're going
to make more money coming back.
Now, just like in demand, you can have a change
in quantity supplied and a change in supply.
If there is a change in quantity supplied, what happened
is that there was a direct price change.
Direct price change in the good that you're looking
at requires a change in quantity supplied.
To get a change in supply -- to have supply change, right --
to literally have this graph move,
you have to release ceteris paribus,
and then supply can shift as a curve.
Whereas, when the -- when it's just the quantity supplied
changing, then you're just talking about a price change.
So if the price goes down, say to here -- our new price --
our quantity supplied will decrease to a new supply.
Right? And there will be non-price determinants --
non-price determinants -- I'll abbreviate it --
those are the things that are going to change supply.
Okay. So an increase or decrease in supply will be coming
from a non-price-determinant change --
again, when you release ceteris paribus.
There you go.
That's supply.