1 supply lecture. 2 supply schedule and supply curve : supply schedule : – – a tabular depiction...
TRANSCRIPT
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Supply LectureSupply Lecture
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Supply Schedule and Supply Schedule and Supply CurveSupply Curve
Supply schedule::– A tabular depiction of the numerical
relationship between the quantity supplied and its own price.
Supply curve::– AA graphical representation of the
relationship between the quantity supplied and its own price.
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Supply schedule for Supply schedule for hamburgers:hamburgers:
Price/lbPrice/lb. . Quantity Quantity suppliedsupplied
$ .50 100 lbs.1.00 200 lbs.1.50 300 lbs.2.00 400 lbs.2.50 500 lbs.
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Relationship Between Relationship Between Supply and Quantity Supply and Quantity
Supplied QSupplied Qss
As the price of hamburger increases, ceteris paribus, the quantity supplied increases.
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The Supply Curve for The Supply Curve for HamburgerHamburger::
SupplyCurve
Price
Quantity Supplied per unit time
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The Supply Curve:The Supply Curve:
1. One point on the supply curve represents a single price / quantity relationship.
2. The upward slope of the supply curve indicates that the quantity supplied increases with price.
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3. A change in the commodity's own price results
in movement along the supply curve.
Qs / u.t.
PriceSS
P0
P1
Q0 Q1
As price goes from P0 toP1, quantity supplied goesfrom Q0 to Q1
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Increase in Supply:Increase in Supply:
Is characterized by a shift of the supply curve to the RIGHT.
PriceS0
S1
Q /u.t.
At every price, quantity supplied is greater!
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A Decrease in Supply:A Decrease in Supply:
Is characterized by a shift of the supply curve to the LEFT.
Price
Q /u.t.
At every price, quantity supplied is less!
S0
S1
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Supply Defined:Supply Defined:
Supply:
Relationship showing the various amounts of a commodity that producers would be willing and able to sell at possible alternative prices during a given time period, ceteris paribus.
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Quantity Supplied Defined:Quantity Supplied Defined:
Quantity SuppliedQuantity Supplied::
Total amount of a commodity that all firms are willing and able to sell, at a given price, during a given time period.
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The Determinants of The Determinants of SupplySupplyCommodity's own price:1. PQs c.p. (Law of
Supply)
2. What type of relationship is characterized by supply?
DIRECT
3. Slopes up and to the right.
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Number of Firms in the Number of Firms in the IndustryIndustry
If the number of business firms producing a product increases,
ceteris paribus,
the supply curve shifts to the right.
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Increased Business FirmsIncreased Business Firms
Price S1
Q /u.t.
At every price, quantity supplied is greater!
S0
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State of TechnologyState of Technology
Technological improvements allow a greater yield from a given set of factors.
Therefore, we see an PE
This shifts the supply curve to the right.
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Improved Technology:Improved Technology:
Price S1
At every price, quantity supplied is greater!
S0
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Improved Technology:Improved Technology:
The price of a 12.5 inch color T.V. in 1954 was $1,000.
What was the real price in 1954 using the CPI (1982-84 =100) of 26.9?
$3,717.47
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Improved Technology:Improved Technology:
What would the price of this 12.5 inch color T.V. be in 1996 dollars?
The average CPI for 1996 is 156.7
$5825.28
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WeatherWeather
If the weather is bad, the supply of agricultural commodities decreases.
If the weather is good, the supply of agricultural commodities increases.
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Good WeatherGood Weather
Price S1
At every price, quantity supplied is greater!
S0
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Bad WeatherBad Weather
PriceS1
At every price, quantity supplied is less!
S0
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Changes in the Cost of Production
This implies that the prices of the factors of production have increased, or decreased.
Changes in technology may affect the quantity of the factors of production required, or the output derived from production factors, thus reducing cost as well.
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Increased Production Increased Production CostsCosts
PriceS1
S0
At every price, quantity supplied is less!
Supply curve shifts upvertically by the amountof the increased productioncost.
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Slide Show from 22 to 27Slide Show from 22 to 27
Price S0
D
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Price S0
D
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Price S0
D
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Price S0
D
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Price S0
D
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Price S0
D
S1
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Price S0
D
S1
Did market price increaseby as much as the increasein cost of production?
Are ALL the increased costspassed on to the consumer?
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What Occurs when COP What Occurs when COP Decreases?Decreases?
Price S1
S0
At every price, quantity supplied is more!
Supply curve shifts Downvertically by the amountof the decreased productioncost.
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Slide Show 32 to 36Slide Show 32 to 36
Price
D
S0
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Price
D
S0
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Price
D
S0
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Price
D
S0
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Price
D
S0
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Price S1
D
S0
Did market price decreaseby as much as the decreasein cost of production?
Are ALL the decreased costspassed on to the consumer?
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Price of other commodities that use the same or similar set (bundle)of inputs:
1. Assume that a farmer has 100 acres of land on which he can grow corn or soybeans.
2. Assume the farmer will plant
the one crop that yields the greatest expected profit.
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Price of other commodities that use the same or similar set (bundle)of inputs:
3. Assume that on March 1, the E(profit) from corn is a greater than the E(profit) from soybeans.
What would you expect our farmer
to do?What would the market expect our
farmer to do?
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Expect Supply of Corn to....?
Price S1
S0Expect supply of corn toincrease in response to greater expected profits
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Expect Price of Corn Expect Price of Corn to......?to......?
Price S1
D
S0
P0
P1
We would expect cornprices to decrease in response to increasedproduction, c.p.
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Let Us Add a WRINKLE.Let Us Add a WRINKLE.
4. A crop failure in Brazil due to extended drought is announced on April 1, that doubles the price of soybeans.
How would you expect many farmers to respond to this news?
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Domestic Supply of Corn? Domestic Supply of Corn? Domestice Price of Corn?Domestice Price of Corn?
Price S0
D
S1
P1
P0
Shift resources out ofcorn production in responseto a decrease in expectedrelative profits
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Domestic Supply of Domestic Supply of Beans? Domestic Price of Beans? Domestic Price of
Beans?Beans?
Price S1
D
S0
P0
P1
Shift resources into bean production in responseto an increase in expectedrelative profits
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Do You See Other Do You See Other Strategies?Strategies?
1. Stay with corn in anticipation of higher prices at harvest due to reduced corn acreage (decreased supply)
2. Go with beans, but hedge in the futures market to protect yourself from lower harvest prices due to increased soybean acreage (increased supply)
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What Has Happened to the What Has Happened to the Supply of Farm Labor Over Supply of Farm Labor Over
TimeTimeFarm Labor Mkt. Non-Farm Labor Mkt.
D0
S0
S0
D0
P0
P0
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Farm Labor Mkt. Non-Farm Labor Mkt.
D0
D1
S0
D0
S0
P0
P0
P1
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Farm Labor Mkt. Non-Farm Labor Mkt.
D0
D1
S0
S1
D0
S0
P0
P0
P1
P1
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Producer ExpectationsProducer Expectations
If producers expect the price of a commodity he is able to produce to increase, supply of that commodity may increase.
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Price S1
D
S0
P0
P1
Supply increases based onthe producer’s expectation of a price increase
BUT, prices in fact decreasedue to increased supplies
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Producer ExpectationsProducer Expectations
If producers expect the price of a commodity he is able to produce to decrease, supply of that commodity may decrease.
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Price S0
D
S1
P1
P0
Supply decreases based onthe producer’s expectation of a price decrease
BUT, prices in fact increasedue to decreased supplies
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Price Cycles Due to Price Cycles Due to ExpectationsExpectations
P
Time
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Length of Time Available for Producer Response to Price
Changes
Affects the slope of the supply curve
Supply very short run
Price
Q/u.t.
Not very responsiveto price changes if atall (Perfectly inelastic)
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Length of Time Available for Producer Response to Price
Changes
Example:
It is August 1st and corn price increases 50%. What supply response do farmers have at this point in the growing season?
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Length of Time Available for Producer Response to Price
Changes
Supply short runPrice
Q/u.t.
P1
P0
Q0Q1
As the amount of timeproducers have to respondto price changes, the moreelastic supply becomes
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Length of Time Available for Producer Response to Price
Changes
Supply Long runPrice
Q/u.t.
P1
P0
Q0Q1
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Production Taxes and Production Taxes and SubsidiesSubsidiesProduction taxes are also referred
to as indirect business taxes:– Excise and Sales taxes– Property taxes,– License fees, and Customs duties
and payroll taxes:– Social Security and Medicare taxes– Unemployment taxes (FUTA)– Clinton’s prev. proposed health care
tax
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An Increase in Production An Increase in Production Taxes Taxes
Price
Q/u.t.
S0
S1
Results in a decreasein supply.
What happens to pricesto consumers?
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A Decrease in Production A Decrease in Production TaxesTaxes
Price
Results in an increasein supply.
What happens to pricesto consumers?
S1
S0
Q/u.t.
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Many Politicians.......Many Politicians.......
are supported by voters when they declare that businesses do not pay their fair share of taxes, so let’s increase business taxes.
Who may pay a significant portion of this tax increase?
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Production Taxes and Production Taxes and SubsidiesSubsidies
Increased corporate income taxes may result in a decrease in supply and thus higher consumer prices.
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Production Taxes and Production Taxes and SubsidiesSubsidies
Subsidies can be thought of as production taxes in reverse:– so called “corporate welfare”– the state subsidy provided to UNC
system universities– FSA shared payments for
conservaton measures on agricultural lands, and previous farm program subsidies.
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Increase Subsidies (or tax Increase Subsidies (or tax breaks)breaks)
Price
Results in an increasein supply.
What happens to pricesto consumers?
S1
S0
Q/u.t.
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Corporate Welfare?Corporate Welfare?
O.K., let’s cut all this so-called corporate welfare and make those big corporations pay their fair share of taxes.
They get all these special interest tax breaks, it is ridiculous. Right!
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Decrease Subsidies (or tax Decrease Subsidies (or tax breaks)breaks)
Price
Q/u.t.
S0
S1
Results in a decreasein supply.
What happens to pricesto consumers?
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Remember:
Supply shifters have no affect on the Demand Curve !!!!