Supply 1. Supply Defined What is supply? Supply is the different quantities of a good that sellers...
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Transcript of Supply 1. Supply Defined What is supply? Supply is the different quantities of a good that sellers...
Supply
1
Supply DefinedWhat is supply?Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices.
What is the Law of Supply?There is a DIRECT (or positive) relationship between price and quantity supplied.• As price increases, the quantity producers make
increases• As price falls, the quantity producers make falls.
Why? Because, at higher prices profit seeking firms have an incentive to produce more.
EXAMPLE: Mowing Lawns2
Example of SupplyYou own an lawn mower and you are willing to mow lawns. How many lawns will you mow at these
prices?Price per
lawn mowedQuantity SuppliedSupply
Schedule
3
$1$5
$20$50
$100$100
0
An Introduction to Supply
Economists analyze supply by listing quantities and prices in a supply schedule.
Figure 5.1Figure 5.1
GRAPHING SUPPLY
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
Draw this large in your notes
5
PriceQuantitySupplied
$5 50
$4 40
$3 30
$2 20
$1 10
An Introduction to Supply
An individual supply curve illustrates the various amounts supplied at each price that would prevail in the market.
An Introduction to Supply
When the supply data is graphed, it forms a supply curve with an upward slope.
Figure 5.1Figure 5.1
An Introduction to Supply
A market supply curve illustrates the amounts offered at various prices by all firms in the market.
An Introduction to SupplyFigure 5.2Figure 5.2
Supply vs. Quantity Supplied• Supply is the amount of a
product that would be offered for sale at all possible prices that could prevail in the market. It’s the big picture. It’s the curve.
• Quantity supplied is the amount that producers bring to the market at any given price. It’s a specific point in time at a specific price. It’s a point on the curve.
Change in Quantity Supplied
• If prices fall too low, producers have the freedom to slow (or stop) production or leave the market completely.
• If the price rises, the producer can step up production levels if they choose.
• A change in quantity supplied is the change in amount offered for sale in response to a change in price.
Change in Quantity Supplied
Change in Supply
New topic…
Change in Supply
A change in supply is when a situation occurs which causes a change in the number of products for sale at all possible prices in the market.
Change in Supply
There are many different situations (factors) that can cause a change in supply.
Factors such as cost of labor, technology, taxes, etc. can cause an increase or decrease in supply.
Change in Supply
• the cost of inputs • (labor, packaging, etc.)• inverse relationship
• productivity levels • (motivation, training, efficiency)
• positive or negative effects
• technology • (new software, machines, etc.)
• improvements or failures
7 Factors that can
cause a
change in
supply:
Change in Supply
• taxes and subsidies • change in taxes• support of farmers• positive and negative effects
• expectations • future increase in prices
• might withhold production
7 Factors that can
cause a
change in
supply:
Change in Supply
• government regulations • safety regulations• positive and negative effects
• number of sellers• Businesses entering and exiting the market
• can move the curve left or right
7 Factors that can
cause a
change in
supply:
Change in Supply
Negative
Factor
Decrease in
Supply
Shift to the Left
Positive
Factor
Increase in
Supply
Shift to the
Right
Change in Supply
Figure 5.3Figure 5.3
Supply PracticeFirst, identify the determinant (shifter) then
decide if supply will increase or decrease
21
ShifterIncrease or Decrease Left or Right
1
2
3
4
5
6
Supply Practice
Hamburgers1. Mad cow disease kills 20% of cows 2. Price of hamburgers increase 30%3. Government taxes burger
producers4. Restaurants can produce burgers
and/or tacos. A demand increase causes the price for tacos to increase 500%
5. New bun baking technology cuts production time in half
6. Minimum wage increases to $20
1. Which determinant (SHIFTER)?2. Increase or decrease?3. Which direction will curve shift?
22
Time Out!
To Be Continued…
Quick Review
1. Define supply2. Define the Law of Supply3. How can you best explain the reason for the
Law of Supply?4. Describe the difference between a change in
supply and a change in the quantity supplied5. Name four of the seven determinants of a
change in supply6. Name the other three determinants of a
change in supply7. Name 10 candy bars
Elasticity of Supply
Remember: elasticity is
a measureme
nt….
Determinants of Supply ElasticitySupply elasticity is related to how quickly a producer can act when a change in price occurs. • If adjusting production can be
done quickly, the supply is elastic.
• If adjusting production is complex and requires much advance planning, the supply is inelastic.
Elasticity of Supply
• Can the purchase be delayed?
• Are there adequate substitutes?
• Does the purchase require a large portion of income?
Supply elasticity
is not concerned
with:
Supply elasticity is only concerned with how quickly a producer can act when a
change in price occurs.
Elasticity of Supply
Supply is elastic when an increase in price leads to a larger increase in output (supply).
Figure 5.4aFigure 5.4a
Here, when price doubles, quantity supplied triples. Thus, this product is elastic.
Elasticity of Supply
Figure 5.4bFigure 5.4bHere, when price doubles, quantity supplied only increases 50%. Thus, this product is inelastic.
Supply is inelastic when an increase in price causes a smaller increase in supply.
Elasticity of Supply
Supply is unit elastic when a change in price causes a proportional (same) change in supply.
Figure 5.4cFigure 5.4c
As you can see, when price doubles, so does the quantity supplied. This product is unit elastic.
Elasticity of SupplyFigure 5.4dFigure 5.4d
Elasticity of Supply
Quantity (Q)