Supply and Price Determinants

2.3 Supply

· The amount firms are willing and able to sell in a given time period.

· Qs = f(……….);

· P (Price of the good) [+]

· Py (Price of related goods)

o [substitutions in production - / complements in production +]

· Px (Price of inputs) [-]

· Te (Technology) [+]

· F (Number of suppliers) [+]

· Z other factors (error terms) [+/-]

· Qs = f(P,Py,Px,Te,F,z) cet. par.

Quantity Supplied and Price

· Qs = f(P) cet. par.

· ‘The law of supply’: the higher the price, the greater the quantity supplied.

· A change is price results in a change in the ‘quantity supplied’.

· A change in P results in a change in Qs not supply.

Supply shifters

· Px(-),Py(-),Te(+),F(+),z()+/-