Supply. Thinking about Supply To understand supply, think like a producer, not a consumer. Profits...
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Transcript of Supply. Thinking about Supply To understand supply, think like a producer, not a consumer. Profits...
![Page 1: Supply. Thinking about Supply To understand supply, think like a producer, not a consumer. Profits generally motivate producers: if profits can be high,](https://reader035.fdocuments.in/reader035/viewer/2022062516/56649e5e5503460f94b57a01/html5/thumbnails/1.jpg)
Supply
![Page 2: Supply. Thinking about Supply To understand supply, think like a producer, not a consumer. Profits generally motivate producers: if profits can be high,](https://reader035.fdocuments.in/reader035/viewer/2022062516/56649e5e5503460f94b57a01/html5/thumbnails/2.jpg)
Thinking about Supply• To understand supply,
think like a producer, not a consumer.
• Profits generally motivate producers: if profits can be high, they produce more ; if profits must be low, they produce less
• Supply is affected by several factors, most importantly the price of the good.
• Markets require both buyers and sellers; producers are the sellers
![Page 3: Supply. Thinking about Supply To understand supply, think like a producer, not a consumer. Profits generally motivate producers: if profits can be high,](https://reader035.fdocuments.in/reader035/viewer/2022062516/56649e5e5503460f94b57a01/html5/thumbnails/3.jpg)
Defining Supply
Supply is the amount of a good or service which a seller is willing to provide at a particular price over a particular time period.
• Supply is affected by– Price– Factor costs (“Inputs”) – Supplier Substitutes– Government Actions– Future Expectations– Weather– Technology
![Page 4: Supply. Thinking about Supply To understand supply, think like a producer, not a consumer. Profits generally motivate producers: if profits can be high,](https://reader035.fdocuments.in/reader035/viewer/2022062516/56649e5e5503460f94b57a01/html5/thumbnails/4.jpg)
Price (P)
• For most goods, when price rises, the quantity supplied rises.
• Producers make higher profits when prices are higher (ceteris paribus…)
• Producers make lower profits when prices are lower
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Graphing Supply
• Axes are the same as for demand
• Be sure to label both axes and the curve
• We usually use a straight line for supply, but in reality it can be curved
• Positive relationship between price and quantity
Quantity
Price S
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Shifting Supply
• If anything other than price changes, we must shift the curve left or right
• We call this shifting “increasing” or “decreasing” supply
• “Supply” is the whole curve; a specific spot on the curve tells us the “quantity supplied”
Quantity
Price S
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Factor Costs (“Inputs”)• Supply changes when
factor costs change• Example: what
happens to supply of lattes when coffee bean prices fall?
• If factor costs increase, supply decreases; if factor costs decrease, supply increases
• Example: what happens to the supply of computers if processor chip prices fall?
Effect of Coffee Bean Prices on Lattes
Quantity
Price S1 S2
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Supplier Substitutes• Production substitutes are
what a supplier could produce instead of the product in question
• Example: for a supplier, what is a substitute for ice cream?
• If the price of a substitute increases, supply decreases; if the price of a substitute decreases, supply increases
• Example: the price of building offices rises; what happens to the supply for building houses?
Effect of Office Construction prices on home construction
Quantity
Price S2 S1
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Government Action
• Government action (e.g., taxes, subsidies) affects supply
• Example: what happens for supply of photovoltaic cells when government subsidizes their production?
• Example: what happens to supply of air flights when government raises taxes on airport runway departures?
Effect of subsidies on cell production
Quantity
Price S1 S2
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Future Expectations• Suppliers want to get the
highest prices for their products
• If suppliers expect higher prices in the future, they REDUCE today’s supply
• If suppliers expect lower prices in the future, they INCREASE today’s supply
• Example: Nokia expects to sell phones at a higher price next month. What happens to today’s supply?
![Page 11: Supply. Thinking about Supply To understand supply, think like a producer, not a consumer. Profits generally motivate producers: if profits can be high,](https://reader035.fdocuments.in/reader035/viewer/2022062516/56649e5e5503460f94b57a01/html5/thumbnails/11.jpg)
Weather
• Weather can have a strong impact on supply.
• What happens to supply when a freeze strikes CA orange groves?
• What happens when perfect rainfall waters Colorado wheat fields?
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Example: iPhones
• What are factor costs for iPhones?
• What are supplier substitutes for iPhones?
• Show the effects of a fall in the cost circuit boards on the supply of iPhones.
• Show the effects of a drop in price of cell phones on app supply
• Show the effects of government subsidies for healthy-lifestyle apps