Lecture 3-Price Theory Supply.pdf

# Lecture 3-Price Theory Supply.pdf - LECTURE 3 PRICE THEORY...

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LECTURE 3 PRICE THEORY - SUPPLY

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Price Theory - Supply Unlike the demand in which it deals with consumer behaviour, the supply theory deals with the behaviour of firms. As the objective of business firms to obtain profits, supply decisions depend on profit potential.
Price Theory - Supply Supply is “The quantity of goods and services willing to be produced by firms or offered for sale at a particular time or particular place at alternative prices”

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Price Theory - Supply Quantity supplied is the amount a particular product that a firm would be willing to offer for sale at a particular price during a given time period. Generally, an increase in the market price, ceteris paribus, leads to an increase in the quantity supplied. Conversely, a decrease in the market price, ceteris paribus, leads to a decrease in the quantity supplied.
Supply Function The quantity supplied of a good X depends solely on: The price of good x (Px) The supply of good X depends on: The prices of other goods (Py) The prices of factors of production (Pf) The state of technology (T) Other relevant factors (z)

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Supply Function In general, the supply function can be written as: Sx = f (Px, Py, Pf, T, Z) or Sx = f (Px) c.p. Sx = f (Py, Pf, T, Z) c.p. c.p = ceteris paribus
Supply Schedule Supply Schedule refers to a table that shows how much of a product that firms will produce/sell at different prices. The table in the next slide shows the quantities of soybeans that an individual farmer might sell at various prices.

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Supply Schedule Price per bushel (\$) Quantity Supplied (bushels per year) 1.50 0 1.75 10,000 2.25 20,000 3.00 30,000 4.00 45,000 5.00 45,000 The farmer‟s supply schedule for Soybeans
Supply Curve The information in the supply schedule may be presented graphically in a supply curve. By joining the points, we can trace an upward sloping supply curve There will movements along the supply curve if there are changes in the price level.

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Supply Curve s Qty Supplied (‘000 ) Bushels of soybean produced Price(\$) 1.50 1.75 2.25 3.00 4.00 0 10 20 30 45 5.00
Supply Curve It is observed that:

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