Supply

Law of Supply

• Producers tend to supply more of a good or service as prices for the good or service increase.

• As prices increase, the anticipated benefit to producers rises; the higher price acts as an incentive, encouraging producers to move more resources into production of the higher-value good or service.

• There is a positive relationship between price and supply.

Determinants of Supply

• Input prices: cheaper input prices, encourage production

• Technology: any improvement in technology will increase supply.

• Number of sellers: when more firms enter the industry, the supply increases.

• Expectations: changes in expectations about the future price of a product

• Natural disasters/unexpected events

Changes in the Supply Curve

Change in Supply• Something other than PRICE has caused a SHIFT in the

supply curve • Increase (shift to the right) Decrease (shift to the left)

Change in QUANTITY SUPPLIED• PRICE has caused a MOVEMENT along the supply curve• Quantity refers to how many units of a good/service

that firms are willing to supply• Increase/Decrease in QS (movement along the supply

curve)

• The supply of cars when open-trade agreements bring in new producers.

• The supply of coffee when freezing temperatures hit major coffee-producing regions of Brazil and Costa Rica

• The supply of lumber when a new computer assisted saw reduces the cost of lumber production

• The supply of gasoline today if there is an expected shortage and higher prices likely to occur next week because of a major hurricane in the Gulf of Mexico.

How many hours are you willing to work?

• You have decided that you need to earn more money. You are considering applying for a part-time job.

• List the number of hours that you are willing to work per week at each of the hourly rates of pay. Assume a seven-day week, and remember that you must still attend school

• What pattern do you observe in the responses above?

• Several students chose not to supply labor at any wage rate. Why?

• What influences your decision to work or not to work?

• Why does a higher wage usually increase the number of hours people are willing to work?

• Would you predict that a different group of people would fill out the questionnaire differently?