Supply refers to the relationship between the price of a

Supply commodity and the quantity of the commodity that producers wish to
make and sell per period of time. If there is a demand for a product, a
businessman has the incentive to make the product and sell it in the
market. A rise in price signals the producer to produce more of the
product while a fall in price signals the producer to produce less of the
product.

LAW OF SUPPLY
The Law of Supply states that, other things being equal, the
quantity supplied of a good per period of time rises when the price of
the good rises and the quantity supplied per period of time falls when
the price falls.

Table 16.1 DEMAND SCHEDULE FOR PUTO

In our study of demand, we discussed about consumers and buyers. In
Quantity Supplied
the study of supply, we will deal with business firms, producers and Points Price per Pack (₱)
of Puto (Packs)
sellers. A 50 40
B 40 30
In this module, you will: C 30 20
D 20 10
1.Define supply; E 10 5
2.Explain the law of Supply;
3.Define supply schedule and supply curve; Self-check
 What is the relationship between price and quantity supplied?
4.Distinguish between movement along a supply curve and shift
of the supply curve; and
5. Analyze some non-price factors that affect supply.
THE MEANING OF SUPPLY THE SUPPLY SCHEDULE

Module 16 Supply 1
 The supply schedule is a table that shows the relationship
60
between the price of a good or service and the quantity supplied. P
Table 16.1 shows that changes in the price of puto are accompanied A
by changes in quantity supplied of puto. At price ₱50, quantity 50
supplied is 40 packs. At the lower prices of ₱40, ₱30, and ₱10,

Price os Puto (₱)

quantity supplied falls to 30, 20 and 5 packs, respectively. B
40
The relationship between the price of puto and the quantity
supplied of puto shown in the supply schedule is consistent with the C
Law of Supply: quantity supplied rises when price increases and 30
quantity supplied falls when price decreases.
D
20
THE SUPPLY CURVE
The supply curve is a graph of the relationship between the E
price of a good and service and the quantity supplied. By drawing a 10
supply curve based on the supply schedule, one can show clearly the
changes in the quantity supplied for every change in price. See Figure
0 Q
16.1 5 10 20 30 40
Quanty of Puto (Packs)

The supply curve slopes upward. This means that there is a positive
relationship between price and quantity supplied.

Figure 16.1 SUPPLY CURVE FOR PUTO NON-PRICE FACTORS AFFECTING SUPPLY

Module 16 Supply 2
 There are factors other than the price of a commodity that quantity of similar good is offered for sale at every price, thus the
affect the supply of that commodity. These factors include the number supply curve shift to the left.
of producers, change in the price of factors of production, price of
related products, state of technology, and expectations of the future. INCREASE IN THE NUMBER OF PRODUCTS
A rise in the price of the corn encourages corn farmers to plant
Figure 16.2 SHIFT OF THE SUPPLY CURVE more corn. It is possible that the rice farmers will shift to corn farming.
If this happens, there will be increase in the supply of corn. The supply
curve for the corn will shift to the right.

CHANGE IN THE PRICE OF FACTORS OF PRODUCTION

Land, labor and capital are used as inputs in the production of
good and services. Suppose wages paid to labor increased. This will
increase the cost of production, causing the business firm to produce
less at any given price. In this case, there will be a decrease in supply.
A decrease in the supply of goods brought about by this activity will
result in the leftward shift of the supply curve for that product.

CHANGE IN THE PRICE OF RELATED PRODUCTION

A change in the related products will affect supply. A rise in the
price of tilapia may convince the owners of fish farms engaged in
A change in a non-price factor will shift the supply curve mudfish production to shift to tilapia production. If that happens, there
leftward or rightward. Study Figure 16.2, where S0 is the original will be an increase in the supply of tilapia.
supply curve that could result from changes in non-price factors.
An increase in supply (S2) indicates that more goods are offered TECHNOLOGICAL IMPROVEMENT
for sale at same price compared to the original supply schedule (S 0) Increase productivity lowers the cost of production. One of the
Here, the supply moves to the right of the original or earlier supply ways in which productivity could be increased is through
schedule. Meanwhile, a decrease in supply (S1) would indicate less improvements in technology. An example would be the use of robots
in speeding up, and lowering the cost of, production. Improvements in

Module 16 Supply 3
technology will increase supply. Here, supply curve shifts to the right
 SYNTHESIS
of the earlier supply schedule and the supply curve for the supply of
 Supply refers to the relationship between the price of a
this product will shift to the left.
commodity and the quantity of the commodity that
producers wish to make and sell per period of time.
EXPECTATIONS
 The Law of Supply states that, other things being equal,
The amount of goods and services available today may depend
the quantity supplied of a good per period of time rises
on the business firms’ expectations of the future. Suppose a gasoline
when the price of the good rises and the quantity
dealer will hold back his supply. When this happens, there will be a
supplied per period of time falls when the price falls.
decrease in the supply of this product will shift to left.
 The supply curve is a graph of the relationship between
An increase in supply (S2) indicates that more goods are offered
the price of a good and service and the quantity
for sale at the same price compared to the original supply schedule
supplied. The supply curve slopes upward.
(S0). Here, the supply schedule moves to the right of the original or
 Non-price factors affecting supply include the number of
earlier supply schedule. Meanwhile, a decrease in supply (S1) would
producers, change in the price of factors of production,
indicate less quantity of similar good is offered for sale at every price,
price of related products, state of technology, and
thus the supply curve shifts to the left.
expectations of the future.

MODULE REVIEW

A. Vocabulary. Define the following terms and use each in the

sentence.
1. supply 3. supply schedule
2. supply curve 4. Law of Supply

B. Review Questions. Answer the following questions.

1. What is the Law of Supply?

Module 16 Supply 4
 2. Why are the supply schedule and the supply curve useful in the L
examination of the relationship between the price of the good or LAW OF SUPPLY- states that, other things being equal, the
service and the quantity supplied? quantity supplied of a good per period of time rises when the
price of the good rises and the quantity supplied per period of
C. Activities time falls when the price falls.
Interview a successful businessman about his decision regarding
supply. Report in the class the result of the interview. N
NON-PRICE FACTORS- factors affecting supply include the
D. Valuing number of producers, change in the price of factors of
What values are exhibited by the entrepreneur analyzing production, price of related products, state of technology, and
changes in the price and non-price determinants before deciding on expectations of the future.
whether or not to increase output? Explain your answer.
Q
QUANTITY- an amount or number of something
Answer to Self check Question

P
There is a direct relationship between price and quantity supplied. PRICE- the amount, in the current medium of exchange, which is
At high prices, producers tend to produce more, while at lower asked or received in exchange for an economic good.
prices, they tend to produce less.
PRODUCER GOODS- it is raw materials and tools, needed by
manufacturer to make other goods.

GLOSSARY
PRODUCTION- this is the creation of something capable of
satisfying a need.
C
COMMODITY- any concrete thing desired by purchasers,
possessing utility, and available in limited supply.

Module 16 Supply 5
 S
SUPPLY- refers to the relationship between the price of a
commodity and the quantity of the commodity that producers
wish to make and sell per period of time.

SUPPLY CURVE- is a graph of the relationship between the price

of a good and service and the quantity supplied. The supply
curve slopes upward.

SUPPLY SCHEDULE- is a table that shows the relationship

between the price of a good or service and the quantity
supplied.

T
TECHNOLOGY- this is the application of sciences, especially to
engineering, administration, and production, in the use of
machines to increase productivity.

Module 16 Supply 6