Supply power point

4CHAPTER SupplySupply

1

Supply2

Supply (S) = the willingness and ability to sell a good or service

You want to go into business but are not ready. Are you part of supply?

No. You must be able to supply a product.

You are able to produce a product, but you don’t want to. Are you part of supply?

No. You must be willing to supply a product.

Please sell me your hat!

I already told you, I don’t

want to sell it.

Law of Supply3

As the price (P) of a good increases, the quantity supplied (Qs) of the good increases.

ANDAs the price (P) of a good decreases, the quantity supplied (Qs) of the good decreases.

If P then Qs

If P then Qs

NOTE: The Law of Supply shows that quantity supplied moves in the direction as price.same

Difference Between Supply and Quantity Supplied

4

Quantity Supplied (Qs) = number of units of a good

produced and offered for sale at a specific price.

Quantity supplied is always a number.

BUT Supply (S) = willingness and ability of sellers to produce

and offer to sell a good or service.

ForSale

ForSale

ForSale

Supply Schedule5

Supply Schedule = a chart showing the quantity supplied at each price level

$1 10

$2 20

$3 30

$4 40

Price(dollars)

Quantity supplied

(units)

$1 10

$4 40

At $1, what is the Quantity Supplied?

10 units

At $4, what is the Quantity Supplied?

40 units

Is this Supply Schedule an example of the Law of Supply?

Yes

If P then Qs

If P then Qs

Supply Curve6

$1 10

$2 20

$3 30

$4 40

Price(dollars)

Quantity supplied

(units)4

3

2

1

0

Pri

ce (

dol

lars

)

Quantity supplied(units)

10 20 30 40

Supply Curve

A

B

C

D

A Supply Schedule can be made into a graph.

Both the Supply Curve and Supply Schedule show the Quantity Supplied at each price level.

$1 10

$2 20

$3 30

$4 40

Supply Has a Direct Relationship to Price 7

Supply Curves have a direct relationship to price.

4

3

2

1

0

Pri

ce (

dol

lars

)


10 20 30 40

Supply Curve

A

B

C

D

If P then Qs

If P then Qs

As price increases, what happens to the quantity supplied?

Quantity Supplied increases

As price decreases, what happens to the quantity supplied?

Quantity Supplied decreases

Quantity supplied moves in the same direction as changes in price.

Vertical Supply Curve8

4

3

2

1

0P

rice

(d

olla

rs)


10 20 30 40

Most supply curves slope upward, but a few are vertical supply curves.

Vertical supply curves represent goods that:

1. cannot be reproduced.

Goods that you cannot produce have vertical supply curves.

Do all supply curves slope upward?

2. you have no resources (time or ability) to produce additional units.

or

800

700

600

500

400

300

200

100

0P

rice

(th

ousa

nd

s of

dol

lars

)

Quantity of Stradivarius violinsX

Supply curve of

Stradivarius violins

500Number of theater seats

Pri

ce (

dol

lars

) 50

40

30

20

10

0

Supply curve of theater seats for tonight’s

performance

9

Quick Check Supply schedule

Supply curve

Upward

Quantity supplied

Chart of supply1

Graph of supply2

If P 3

If P4

Direction of supply curve

5

Quantity supplied

10

Quick Check (continued)Direct

Vertical supply curve

Upward sloping supply curve

Vertical supply curve

Willing and able to produce and sell

Relationship of supply (Qs) to price (P)

6

No time to produce more

7

Can produce more now8

Cannot produce more9

Law of supply10

Pri

ce (

doll

ars)

0

$1,000

2,000 4,000 6,000Quantity supplied of computers

Shifts in Supply Curves11

S3 S2S1

Original supply curve

C BA

Supply can change or shift.

Supply increases Supply curve shifts rightSupply increases Supply curve shifts right

What has happened to supply?

Shift right = Supply increased

What has happened to supply?

Shift left = Supply decreased

Supply decreases Supply curve shifts left

12

What Causes Supply to Shift?

Changes in

Number of sellers

Technology

Taxes

Subsidies

Quotas

Weather (in some cases)

Resource prices

13

Resource Prices

Resource prices = costs of land, labor, capital, and entrepreneurship

Pri

ce (

doll

ars)

0Quantity supplied

S2 S3S1


B CA

Resource prices increase =Shift left

Resource prices decrease =Shift right

14

Technology Technology = the body of skills and knowledge relevant to the use of resources in production

Advancement in technology = the ability to produce more output with a fixed amount of resources

Bushelsper acre

Chairs per hour

Advancement in technology can lower unit costs.

15

Pri

ce (

doll

ars)

0Quantity supplied

S3 S2S1


B

Per-unit cost = average cost

AC

Per-unit cost decline = Shift right

Per-unit cost increase = Shift left

Technology (continued)

Changes in unit costs shift supply curves.

16

Taxes

Taxes = extra costs of doing business that increase or decrease per-unit costs

Decrease taxes = shift right

Increase taxes = shift left

Pri

ce (

doll

ars)

0Quantity supplied

S3 S2S1


BAC

Pri

ce (

doll

ars)

0Quantity supplied

17

Subsidies Subsidies = financial payment made by government to producers for certain actions

S3 S2S1


BAC

Subsidies increase = shift right

Subsidies decrease = shift left

Subsidies have the opposite effect of taxes since they lower per-unit costs.

Pri

ce (

doll

ars)

0Quantity supplied

18

Quotas

Quotas = restrictions on the number of units of a foreign-produced good (import) that can enter a country

S3 S2S1


BAC

Quotas increase = fewer units are allowed,

shift left

Quotas decrease = more units are allowed,

shift right

Pri

ce (

doll

ars)

0Quantity supplied

19

Number of Sellers

Sellers enter or leave a market because of profits.

S3 S2S1


BAC

More profits = more sellers =

shift right

Fewer profits = fewer sellers =

shift left

Profits drive sellers to enter or leave markets.

Pri

ce (

doll

ars)

0Quantity supplied

20

Weather

Weather can increase or decrease supply.

S3 S2S1


BAC

Good weather = shift right

Bad weather = shift left

21

Quantity supplied

Pri

ce

0

Change in Supply or a Change in Quantity Supplied

Change in supply = shift in supply curve

Change in quantity supplied = movement from one point to another along the same curve

S2S1

Quantity supplied

Pri

ce

0

S1

A

B

22

If you only change price, what changes?

Quantity supplied

SupplyIf you change a shift factor, what changes?

What are the supply shift factors?

Changes in resource prices, technology, taxes, subsidies, quotas, number of sellers, and weather.

If you only change the price, does the supply shift? No. It is a change in quantity supplied.

Quantity supplied

Pri

ce

0S1

A

B

Quantity supplied

Pri

ce

0

S1 S2

S3C

23

Elasticity of Supply

Elasticity of supply shows the relationship between the percentage change in quantity supplied (Qs) and the percentage change in price (P).

Elasticity of Supply =

Percentage change in quantity supplied

Percentage change in price

24

Elastic Supply

Elastic Supply = percentage change in quantity supplied is greater than the percentage change in price

If quantity supplied (Qs) 15% and price (P) 10%

1510 = 1.5 greater than 1 = Elastic supply

Inelastic Supply = percentage change in quantity supplied is less than the percentage change in price


510 = .5 less than 1 = Inelastic supply

25

Elastic Supply (continued)

Unit elastic supply = percentage change in quantity supplied is the same as the percentage change in price


1010 = 1 = Unit-elastic supply

1010

= 1 = Unit-elastic supply

Remember

26

Quick Check Shift left

Shift left

Shift right

Shift left

Better training5

If Then

Taxes 1

Energy prices 2

Subsidy4

Labor rates 3 Shift right

Shift right

Wages6

27

Quick Check (continued)Shift right

Shift right

Shift right

Shift left

Sellers11

Weather bad12

If Then

Quotas7

Taxes 8

Shift left

Price of item10

Price of item 9 Quantity supplied decreases

Quantity supplied increases

Less educated workers13

28

Quick Check (continued)Shift left

Shift left

Unit-elastic supply% change in Qs the same as % change in P

18

If Then

Quotas 14

Sellers 15

% change in Qs greater than % change in P

17

Raw material price 16 Shift left

Elastic supply

End of Chapter 4

End of Chapter 4Inelastic supply% change in Qs less than

% change in P19

Supply power point

Education

Transcript of Supply power point