Basic Law of Demand Supply (2)

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Basic Law of Demand and Supply

Basic Law of Demand and Supply

Supply

Supply refers to the quantity of goods that a seller is willing to offer for sale.

  • The supply schedule shows the different quantities the seller is willing to sell at various prices.
  • The supply function represents the dependence of supply on various determinants.

Supply Function Example

Given the supply function:

Qs = 100 + 5P

Price of Fish (per kilo) Supply (in kilos)
20 200
40 300
60 400
80 500
100 600

The Law of Supply

Assuming ceteris paribus, there is a direct relationship between the price of a good and the quantity supplied.

As the price increases, the quantity supplied also increases.

Non-Price Determinants of Supply

When the assumption of ceteris paribus is removed, other factors influence supply:

  1. Cost of Production – Higher costs reduce supply, even if prices remain unchanged.
  2. Technology – Improved technology increases supply, while outdated technology decreases it.
  3. Availability of Raw Materials and Resources – More resources increase supply, while shortages reduce it.

Shift of the Supply Curve

Supply shifts occur due to non-price determinants:

  • Rightward shift (Increase in Supply): Caused by lower production costs, better technology, or increased resource availability.
  • Leftward shift (Decrease in Supply): Caused by higher production costs, outdated technology, or resource shortages.

Supply Function with Non-Price Determinants:

S = f(P, C, T, AR)

  • S = Supply
  • P = Price
  • C = Cost of Production
  • T = Technology
  • AR = Availability of Raw Materials and Resources

Real-Life Application: Clean Water Supply Issue in the Philippines

According to Vice News, 55 people die daily in the Philippines due to a lack of clean water.

UNICEF’s Water, Sanitation, and Hygiene Program reports that over 30 million Filipinos lack access to improved sanitation.

The Philippine Institute for Studies (PIS) projects that by 2050, the population in poverty-stricken areas of Manila will exceed 9 million, increasing demand for limited clean water supply.

Generalization

  • The Law of Demand: At higher prices, buyers demand less of a good.
  • The Law of Supply: At higher prices, sellers supply more of a good.
  • These laws interact to determine market prices and the volume of goods traded.

“A study of economics usually reveals that the best time to buy anything is last year.”

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