>> Okay, so lets put what we know about supply already in a more rigorous framework so that we can understand it a little better when we combine all the different parts of the model. >> Right so let's go back here. >> let's use some of the same very simple framework that we use for demand, and we say that the quantity of X supply is going to a function of basically three things. The first thing is the price of the good the price of x. And we're talking about tomatoes, the price of tomatoes is going to be a factor influence on how much supply of tomatoes we have. >> The second thing is going to be the price of the inputs. >> Just write the whole word here. >> The price of the inputs. >> The price of gasoline changes, it costs you more to provide, the tomatoes. >> So if the price of the inputs change, the supply will also change. >> And the last thing that we said influences the demand, the supply, is technology. >> [SOUND]. >> How good of a tractor you have. >> The better your technology, the lower the cost, >> and that will probably influence your supply, And now that we know the determinants of supply, kind of in this framework, >> then we can be a little more rigorous about this, >> and try to put that in the way of >> schedule, >> Like either a table or a diagram, as we did with the demand. >> So let's start with the table. >> Now think about if we're going to do a table, first the price, how, how the price of the good is related to the quantity of the good's supply. >> So think about how will the price determine the, the supply. >> Right? So let's say you have different prices here, let's say you start at 0, 2, 4, 6, 8, 10, and 12, which are the same prices we use for >> the demand. >> So, in the demand, you saw that when the price increases. >> Then you have less availability of money to actually buy the good. >> So your quantity demanded will be, lower. >> And when the price goes down, then you have to give up less of the goods to buy the goods. >> So you're, >> probably the demand will increase. >> But with supply is different, >> say, you're a farmer, right? And you have certain number of tomatoes, >> would you be willing to sell more or less tomatoes at a higher price? Well probably more, because the higher the price, the more likely you will be to cover the cost of producing those tomatoes. >> So with the supply side, we're going to see the inverse relationship that we saw with demand, >> which is, when the price increases, your willingness to sell will also increase. >> So when the price is zero, clearly you sell nothing, >> because you need to cover some cost. >> But as the price increases, more and more let's say sellers will be able to sell their goods. >> Because they will be able to cover their cost. >> So what we're going to see is that, as the price of the good decreases, in the scale tomatoes, >> you'll have larger supply of tomatoes. >> Alright, so it's a direct relationship between the price and the supply. >> Okay, and in, remember that we use this, this is particularly how we relates one of the determinants >> of supply to the quantity supply. >> And again, this is as we as, as it was the case for the demand. This is kind of like a train schedule, right? So this is, we call the supply schedule in the table, and we can use, put that information in a diagram, x and y plane, >> with few here, as it was in demand. >> Right, so this is QX. >> And, the price in here. >> And we, all we have to do is, these are just coordinates of this plane here. >> So we can take the first one, 0-0, right here, the second one is 2 and 2, right here. >> The third one is 4 and 4. >> Right here. >> Then we go 6 and 6, right here, around here. >> Then it's 8 and 8, and that's around here. >> Getting harder to put the points as we move away from the origin. >> Right? 10 and 10. >> That's here and then the last one which is 12 and 12, 12 and 12, that's around here. >> And if we put it, we, if we cross a line over that >> Start with what do think of this, red here. >> So red for supply. >> If we put a line over those points, we have our famous supply curve, right? The other side of the market. >> Notice that this is just the same information we have here. >> In the diagram, is the same information we have in the table. >> Alright? And now we can use either the table of the diagram to illustrate changes, the what if. >> Right? That's what we do in this class, >> what if. >> For instance, say that your initially at a price of 4. >> Right here. >> Alright? So you are at this point right here, right? So four. >> And say, what if the price of tomatoes changes? Let's say, what if the price of tomatoes increases to six? What will happen to the supply of tomatoes? Well, is the, the first thing you have to ask yourself is, is the cost of tomatoes changing? >> No, the cost of tomatoes is the same. >> But if I am actually selling tomatoes. >> And I was, and it cost me $6 to sell you [INAUDIBLE] tomatoes. >> At a price of 4, I couldn't sell. >> But now that the price is 6, I can sell. >> Right? So when the price increases, the number of sellers, or the quantity of tomatoes will sold by sellers. >> Will be higher than it was before. >> So you're moving again along the curve, to a higher point on that curve but the curve hasn't moved because when you look at the table, what you did here is you move from one row to the next row but the numbers in the, in the table did not change because the cost of providing tomatoes has, did not change. >> The only thing that changed was the price >> And therefore, more people, or the same farmers will be able to sell more tomatoes. >> Because they can cover more, more of their costs. >> But the cost themselve they didn't change. >> So while, when we have a change in the price of the good, >> what we have is a change in the quantity of tomatoes supply. >> Movement from row to row on the table, and that is actually equivalent to a change along the curve, without moving the curve. >> So now we're going to see the same thing. >> What happens, what if, the two other determinants of supply change, and what will be the effect of supply. >> Produced by OCE Atlas Digital Media at the University of Illinois, Urbana-Champaign.