SUPPLY – A PRODUCT OFFERED FOR SALE AT ALL POSSIBLE PRICES THAT COULD PREVAIL IN THE MARKET

• LAW OF SUPPLY – THE PRINCIPLE THAT SUPPLIERS WILL OFFER MORE FOR SALE AT HIGH PRICES & LESS AT LOW PRICES

SUPPLY SCHEDULE

A LIST OF VARIOUS QUANTITIES OF A PRODUCT SUPPLIED AT ALL POSSIBLE

PRICES

SUPPLY CURVE

P

S

Q

SUPPLY SCHEDULE- CAPS

PRICE QUANTITY SUPPLIED

$25/EACH 8 20 6 15 4 10 2 5 0

THE PRICE & QUANTITY NOW MOVE IN THE SAME DIRECTION

INDIVIDUAL SUPPLY CURVECAPS

{DECREASE IN QUANTITY SUPPLIED}

$25 D 20 C 15 B {INCREASE IN QUANTITY SUPPLIED}

10 A 5 2 4 6 8

SUPPLY SCHEDULE- CAPS QUANTITY SUPPLIED

PRICE FIRM A FIRM B = MARKET$25/EACH 8 4 = 12 20 6 3 = 9 15 4 2 = 6 10 2 1 = 3 5 0 0 = 0

P FIRM ? CURVE P FIRM ? CURVE P ? CURVE25 25 2520 20 2015 15 1510 10 10 5 5 5 0 2 4 6 8 0 1 2 3 4 0 3 6 9 11

QUANTITY SUPPLIEDTHE AMOUNT THAT PRODUCERS BRING TO

MARKET AT ANY GIVEN PRICE

CHANGE IN QUANTITY SUPPLIEDTHE CHANGE IN AMOUNT OFFERED FOR SALE IN RESPONSE TO A PRICE CHANGE

INCREASE IN QUANTITY SUPPLIED P

S

Q

INCREASE IN SUPPLY

P

S1

S2

Q

EXAMPLE

TAKE OIL---IF THE PRICE FALLS, THE PRODUCER MAY OFFER LESS UNITS TO SELL---IF IT RISES, HE’LL MOST LIKELY OFFER MORE UNITS TO SELL

CHANGE IN SUPPLY --SHIFT CAPS

P

$25 S S2 THIS RERESENTS 20 A SHIFT IN SUPPLY 15 (INCREASE) 10 5 0 2 4 6 8 10 Q

CHANGES IN SUPPLY OCCUR FOR SEVERAL REASONS(SHIFTERS)

ACRONYM “ROTTENS”

RESOURCE AVAILABILTY(INGREDIANTS)

IF THE AVAILABILITY OF RESOURCES DECREASE, WHAT WILL THE SUPPLY CURVE DO?

NAME SOME RESOURCES FOR MAKING BOOKS.

RESOURCE AVAILABILTY(INGREDIANTS)

NAME SOME RESOURCES FOR MAKING BOOKS.

OTHER GOODS & SERVICES(INPUTS)

IF INPUTS DECREASE, PRODUCERS MAY PRODUCE MORE OF A PRODUCT AT EACH AND EVERY PRICE.

WHAT WOULD THE SUPPLY CURVE DO? IN

OTHER GOODS & SERVICES(INPUTS)

NAME SOME INPUTS

EXAMPLES OR INPUTS

GOVERNMENT REGULATIONSUTILITIES COSTSWORKER PRODUCTIVITYEQUIPMENT COSTS

TECHNOLOGYNEW TECHNOLOGY TENDS TO LOWER THE COST OF PRODUCTION & INCREASE PRODUCTIVITY.WHAT WOULD THE SUPPLY CURVE DO?

TECHNOLOGYNAME AN INSTANCE WHEN TECHNOLOGY WOULD SHIFT THE CURVE THE OTHER WAY.

TECHNOLOGY

• BREAKDOWNS

TAXESIF TAXES GO UP, THE COST OF PRODUCTION GOES UP.WHAT WOULD AN INCREASE IN TAXES DO TO THE SUPPLY CURVE?

EXPECTATIONS #1THIS IS A GUESS OF THE FUTURE PRICE OF A PRODUCT. IF PRODUCERS THINK THE PRICE WILL GO UP, THEY MAY WITHHOLD SOME SUPPLY, CAUSING A ____ IN SUPPLY TO THE MARKET. DE

EXPECTATIONS #1WHICH WAY WILL THE SUPPLY CURVE SHIFT?

EXPECTATIONS #2IF PRODUCERS THINK THE PRICE WILL GO DOWN, THEY MAY _____ SUPPLY TO THE MARKET. IN

EXPECTATIONS #2IN

WHICH WAY WILL THE SUPPLY CURVE SHIFT?

NUMBER OF SELLERSAFFECTS BOTH THE INDIVIDUAL COMPANY AND THE MARKET SUPPLY CURVE.

NUMBER OF SELLERS.WHAT HAPPENS TO THE SUPPLYin

CURVE WHEN MORE FIRMS ENTERTHE MARKET?

SUBSIDIESWHAT ARE THEY?GOVT. PAYMENTS TO ENCOURAGE AN ECONOMIC ACTIVITY

SUBSIDIESGIVE AN EXAMPLE OF A SUBSIDY AND WHAT IT WOULD DO TO THE SUPPLY CURVE.

SUBSIDIESGIVE AN EXAMPLE OF A SUBSIDY AND WHAT IT WOULD DO TO THE SUPPLY CURVE.MILK PRODUCERS PAID NOT TO PRODUCE MILK.

MILK SUBSIDY

GOVERNMENT REGULATIONSINCREASED GOVERNMENT REGULATIONS (IE: NEW SAFETY FEATURES) CAN INCREASE THE COST OF PRODUCTION. WHAT DOES THIS DO TO SUPPLY?

GOVERNMENT REGULATIONS

CHANGES IN ELASTICITY ARE

CAUSED BY

ACRONYMSUBSTITUTEURGENCYNECESSITYLUXURYY-INCOMEDEMINISHING MARGINAL RETURN

WHAT ARE SOME EXAMPLES OF ELASTIC SUPPLY:

WHAT ARE SOME EXAMPLES OF INELASTIC SUPPLY:

P S

INELASTIC – STEEP – NECCESITIES (WATER)

A CHANGE IN PRICE RESULTS IN A SMALL CHANGE IN SUPPLY

P

ELASTIC – FLAT – LUXURIES

(EXPENSIVE CARS)A CHANGE IN PRICE RESULTS IN A

LARGE CHANGE IN SUPPLY

S Q

CHAPTER 6PRICES & DECISIONS

PRICE- A LINK BETWEEN PRODUCERS & CONSUMERS

RATIONING – A SYSTEM WHERE AGENCIES DECIDE WHAT IS FAIR FOR EVERYONE.

MARKET EQUALIBRIUM – WHEN GOODS & SERVICES SUPPLIED IS EQUAL TO QUANTITY DEMANDED.

SURPLUS – OUANTITY SUPPLIED IS GREATER THAN OUANTITY DEMANDED

SHORTAGE – QUANTITY DEMANDE IS GREATER THAN QUANTITY SUPPLIED

PRICE EQUALIBRIUM – IT “CLEARS THE MARKET” : THERE IS NO SURPLUS OR SHORTAGE AT THE END OF THE SELLING PERIOD

CHANGE IN PRICE – A CHANGE IN PRICE OR DEMAND OR BOTH

INCREASE IN DEMAND P D D2 S

P ? Q ?

Q

INCREASE IN DEMAND P D D2 S

P Q

Q

DECREASE IN DEMAND P D2 D S

P ? Q ?

Q

DECREASE IN DEMAND P D2 D S

P Q

Q

INCREASE IN SUPPLY P D S S2

P ? Q ?

Q

INCREASE IN SUPPLY P D S S2

P Q

Q

DECREASE IN SUPPLY P D S2 S

P ? Q ?

Q

DECREASE IN SUPPLY P D S2 S

P Q

Q