3.2 Theory of Supply

Supply of a Commodity

• The quantity sellers are willing to sell at a given price level

• Depends on:

  • Price of the commodity

  • Prices of inputs

  • Technology

  • Opportunity cost

  • Future expectations

  • Number of sellers

Individual Supply

The higher the price, greater is the quantity sellers are willing to sell in the market (law of supply)

Effect of prices of inputs and changes in technology

Effect of prices of goods which can be produced with same inputs

Effect of changes in expectations of future

Market Supply

-Horizontal Summation of Individual Supply Curves

-Positively sloped, why?

-Positive relation between price and quantity

-Change in supply

-Change in quantity supplied

3.3 Market Equilibrium

Equilibrium exists when quantity sellers are willing to sell is equal to the quantity buyers are willing to buy at a given price.

• Surplus - Results in downward pressure on the price

• Shortage - Results in upward pressure on the price

• Impact of Changes in Demand on Market Equilibrium

• Impact of Changes in Supply on Market Equilibrium

3.4 Government Intervention in the Market

Role of the Government

• Public Sector Services

• Monopolies

• Restrictions and Barriers to Entry

• Reducing Trade Barriers Vs Import Tariffs

• Taxation

• Subsidies and Welfare payments

• Laws and Regulations

Conclusion

Market economy is an economic system where the price of a commodity is determined on the interchange of demand and supply. In the modern world, pure system of market economy does not exist. Market economy is different from mixed economy where the price of a commodity is influenced by governmental control. This system is based on three freedoms :

- freedom of the consumer to choose among competing products and services,

-freedom of the producer to start or expand a business, and

- freedom of the worker to choose a job and employer.

Equilibrium exists when quantity sellers are willing to sell is equal to the quantity buyers are willing to buy at a given price.

Control questions:

1. What does mean individual supply?

2. What kind of market economy law do you know?

3. What do you know about market supply?

4. Give more information about market equilibrium.

5. What do you know about government intervention in the market?

Literature:

1. English for economists and managers: textbook/ O. V. Ulyanov, S. V. Grishin; yurginskiy technological Institute. – Tomsk: Publishing house of Tomsk Polytechnic University-theta, 2011. – 111 p.

2. Besanko D.A, Brauetugam R.R, Gibbs M.J Microeconomics,2011, Chicago

3. Griffiths A, Wall S.Economics for business and management,2011, England

4. Varian H.R. Intermediate microeconomics,2010, University of California at Berkeley

5. Boyd, W. Harper. Marketing Management.- Boston, 2010

4. The world economy

The purpose: Consider the main aspects of "Globalization", elements of the World Economy, ways that countries interact, policies that affect others

Key words: globalization, world economy, countries interact, IMF, WTO, World Bank, International Economics, trade

Questions:

4.1 “Globalization”

4.2 Elements of the World Economy

4.3 Ways that Countries Interact

4.4 Policies that Affect Others