1 Supply SECTION 1: Nature of Supply SECTION 2: Changes in Supply SECTION 3: Making Production...

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SupplySupplySECTION 1: Nature of Supply

SECTION 2: Changes in Supply

SECTION 3: Making Production Decisions

CHAPTER 4

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Objectives:Objectives:What is the difference between supply and

quantity supplied?What does the law of supply state?What do supply schedules and supply curves

illustrate?What is supply elasticity?

Nature of SupplyNature of SupplySECTION 1

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Law of supply:Law of supply:More goods and services are supplied when

they can be sold at higher prices, and fewer goods and services are supplied when they must be sold at lower prices.


P Qs

4

Quantity

3.00

2.00

1.00

2000 4000 6000 8000 10000 12000 14000

Price

S

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Difference between supply and Difference between supply and quantity supplied:quantity supplied: supply—quantity of goods and services that

producers are willing and able to offer at various prices during a given time period


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Difference between supply and Difference between supply and quantity supplied:quantity supplied:quantity supplied—the amount of a good or

service that producers are willing to supply at each particular price

Only caused by a change in price!!

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What supply schedules illustrate:What supply schedules illustrate: Supply schedule—the

quantity of a product that a producer is willing to supply at various prices


Price Quantity Supplied

1.00 4,000

2.00 9,500

3.00 14,500

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What Supply Curves Illustrate:What Supply Curves Illustrate:Supply curve

graphs the data shown in supply schedules

Quantity

3.00

2.00

1.00

2000 4000 6000 8000 10000 12000 14000

Price

S

Graph of Supply Schedule

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Creating Supply GraphsCreating Supply Graphs

1. Draw the appropriate Supply Curve for each Supply Schedule.

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#1Supply for gasoline in one week period.Quantity in gallons

Price Q-Supplied4.00 50000 gal3.95 45000 gal3.90 40000 gal3.85 35000 gal3.80 30000 gal3.75 25000 gal

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#2Supply for Pepsi sold at Quick Stopin one day.Quantity in cups of Pepsi.

Price Q-Supplied1.75 751.70 701.65 451.60 301.55 151.50 7

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#3Supply for music CDs in one year.

Price Q-Supplied$25.00 30000$23.00 27000$20.00 25000$18.00 15000$15.00 12000$10.00 10000

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Objectives:Objectives:What does it mean for a product’s supply to

shift?What determinants might cause a product’s

supply curve to shift?How does a tax differ from a subsidy?

Changes in SupplyChanges in SupplySECTION 2

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When a product’s supply shifts, When a product’s supply shifts, different quantities of products are different quantities of products are supplied at every possible price.supplied at every possible price.


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Price

Quantity

S1

S2

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Determinants of product supply Determinants of product supply shifts:shifts: resource prices technology competition prices of related goods producer expectations government tools

Subsidies Taxes Regulations


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Difference between a tax and a Difference between a tax and a subsidy:subsidy: tax—required payment to the government subsidy—payment to private businesses by

the government


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For each Headline:1. Determine what direction the Supply Curve will

move.

2. Determine which determinant of Supply is making the curve move.

3. Draw the graph.

Headlines:Headlines:

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Price of Beef Sky Rockets

Direction? ________________

Determinant? ________________

Draw Graph:

Product: Hot DogsProduct: Hot Dogs

Shift to the Left

Resource Prices

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Price

Quantity

S1S2

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Halloween is Next Week!!!!

Shift?________

Det._________

Graph:

Product: Hershey ChocolateProduct: Hershey Chocolate

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iPods to go on Sale Tomorrow

Shift?________

Det._________

Graph:

Product: HeadphonesProduct: Headphones

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New Television Producer Hopes to Make Splash With New Slim LCD T.V.

Shift?________

Det._________

Graph:

Product: TelevisionsProduct: Televisions

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Product: BananasProduct: BananasTo Keep Costs low, the Government Will

Give Subsidy to Banana Farmers Next Year

Shift?________

Det._________

Graph:

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Product: Come up with your ownProduct: Come up with your ownHeadline: Come up with your own.

Trade with the person in-front of/behind you.

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Supply elasticitySupply elasticity indicates the extent indicates the extent to which price changes affect the to which price changes affect the quantity supplied.quantity supplied.

Nature of SupplyNature of Supply

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S

Elastic Supply

P1

Q1

P2

Q2

Small change in Price

Large change in Qs

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P1

S

Q1

Big Change in Price

Small Change in Qs

Q2

P2

Inelastic Supply

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Objectives:Objectives:Why do producers look at productivity when

making supply decisions?How do varying levels of input affect the

levels of output?How do changes in production costs affect

producers’ supply decisions?

Making Production DecisionsMaking Production DecisionsSECTION 3

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Why producers look at productivity Why producers look at productivity when making supply decisions:when making supply decisions: to determine how efficiently their resources

are being used in production to maximize efficiency to increase profits


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Law of Diminishing ReturnsLaw of Diminishing ReturnsExp. Eff. of input on tot. and mar. prod.

3 stages: Inc. Mar. Ret. Dim. Mar. Ret. Neg. Mar. Ret.

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How to tell what stage you are inHow to tell what stage you are in Find average produced by

each worker.

Change in output

Change in input

Labor Input

Total Product

Marginal Product

0 0

1 10

2 25

3 30

4 27

0

10

15

5

-3

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How varying levels of input affects How varying levels of input affects the levels of output:the levels of output:Adding levels of input increases productivity

up to a point and then eventually results in decreased productivity and in negative marginal product.


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How changes in production costs How changes in production costs affect producers’ supply decisions:affect producers’ supply decisions:by determining the prices at which

producers supply quantities of goods or services

by determining production goals


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1.1. Define the law of supply. Be sure to include how the profit motive relates to this law.

2.2. What causes movement along a supply curve—in other words, what prompts a change in the quantity supplied? How does this movement differ from a shift in supply?

3.3. What determinants can cause a shift in supply? Give examples of at least three of these factors at work for a company that manufactures televisions.

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CHAPTER 4

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4.4. In how many ways does new technology affect the supply curve? Give at least one example for each way you come up with.

5.5. Explain what happens in the three stages of production described by the law of diminishing returns.

6.6. Explain the difference among the following types of costs: fixed, variable, total, marginal.

Wrap-UpWrap-Up

CHAPTER 4

1 Supply SECTION 1: Nature of Supply SECTION 2: Changes in Supply SECTION 3: Making Production...

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