discussion: supply. supply quantity supplied the amount of a good that sellers are willing to sell...

Discussion: Supply

SUPPLY

Quantity supplied the amount of a good that sellers are willing to sell at a given price.

Law of SupplyThe law of supply states:, the quantity

supplied of a good rises when the price of the good rises.

The Supply Curve: The Relationship between Price and Quantity Supplied

Supply Schedule

The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.

Ben’s Supply Schedule

The Supply Curve: The Relationship

between Price and Quantity Supplied

Supply CurveThe supply curve graphs the relationship

between the price of a good and the quantity supplied.

Ben’s Supply Schedule and Supply Curve

Copyright©2003 Southwestern/Thomson Learning

Price ofIce-Cream

Cone

0

2.50

2.00

1.50

1.00

1 2 3 4 5 6 7 8 9 10 11 Quantity ofIce-Cream Cones

$3.00

12

0.50

1. Anincrease in price ...

2. ... increases quantity of cones supplied.

Supply Curve

Change in Quantity SuppliedMovement along the supply curve.Caused by a change that alters the quantity

supplied at each price.

1 5

Price of Ice-Cream Cone

Quantity of Ice-Cream Cones0

S

1.00A

C$3.00 A rise in the price

of ice cream cones results in a movement along the supply curve.

Change in Quantity Supplied

Supply

Try to graph this supply chart (snow shovels handout)

Shifts in the Supply Curve

Shift in SupplyA shift in the supply curve, either to the left

or right. Caused by a change in a determinant other

than price.

Shifts in the Supply Curve

Copyright©2003 Southwestern/Thomson Learning

Price ofIce-Cream

Cone

Quantity ofIce-Cream Cones

0

Increasein supply

Decreasein supply

Supply curve, S3

curve, Supply

S1Supply

curve, S2

What is Supply?

Supply • the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.

The Law of Supply

The law of

supply

•as the price of a good increases, the quantity supplied of the good increases, and as the price of the good decreases, the quantity supplied of the good decreases. •If P then Qs

•If P then Qs

•(Where P = price and Qs = Quantity supplied)

•When price goes up—the quantity supplied goes up•When price goes down—the quantity supplied goes down

The Law of Supply cont.

Direct Relationship

• Price & Quantity supplied move in the same direction.

• As one factor rises, the other rises, too.

Price

As price

increases…

Supply

Quantity supplied increases

Price

As price falls…

Supply

Quantity supplied

falls

The Law of Supply in Numbers & Pictures

Supply Schedule

• A numerical chart that illustrates the law of supply

$.50 1,000

Price per slice of pizza Slices supplied per day

Market Supply Schedule

$1.00 1,500

$1.50 2,000

$2.00 2,500

$2.50 3,000

$3.00 3,500


Supply Curve

Market Supply Curve

Pri

ce

(in

do

lla

rs)

Output (slices per day)

3.00

2.50

2.00

1.50

1.00

.50

0

0 500 1000 1500 2000 2500 3000 3500

Supply

A graph that shows the amount of a good that sellers are willing & able to sell at various prices.


Vertical

Supply Curve

Sometimes the quantity of a good cannot change regardless of price.

EX: Seats at a sporting event tonight—you can’t make more seats in the arena by tonight. Number of sporting event seats

Price in Dollars

500

$50

$40

$30

$20

$10

$0

Supply curve when there is no time to produce more

Supply curve of seats for tonight’s sporting

event

When Supply Changes, the Curve Shifts

Supply Changes

Supply can go up & down

•As supply increases, the curve shifts to the right (S1 to S2)

•As supply decreases, the curve shifts to the left (S1 to S3) Quantity supplied of computers

Price in Dollars

1000 2000 3000 4000 5000 6000

$1000

$0

Original Supply curve

S1

S3

S2

Factors that Cause the Supply Curve to Shift

Prices of Resources

• When resource prices fall, sellers are willing and able to produce more of the good & offer it for sale.

• Ex: Labor, natural resources, etc.


Technology • Is the body of skills & knowledge concerning the use of resources in production

• An advancement in technology is the ability to produce more output w/a fixed amount of resources

• Can help lower the per-unit cost, which is the average cost of producing the good


Taxes

•Taxes on production can increase the per-unit costs of producing a good.

•Taxes cause the supply curve to shift to the left!

•As supply decreases, the curve shifts to the left (S1 to S3) Quantity supplied of computers

Price in Dollars

1000 2000 3000 4000 5000 6000

$1000

$0


S1

S3


Subsidies

•Subsidies are financial payments made by gov’t for certain actions.•Ex: the gov’t may pay $2 for every bushel of corn a farmer produces to encourage farmers to make corn instead of tobacco.

•Subsidies increase production. The curve shifts to the right (S1 to S2)

Quantity supplied of computers

Price in Dollars

1000 2000 3000 4000 5000 6000

$1000

$0


S1

S2


Quotas •Quotas are restrictions on the number of foreign-produced goods or imports that can enter a country.

•As supply decreases, the curve shifts to the left (S1 to S3)


Price in Dollars

1000 2000 3000 4000 5000 6000

$1000

$0


S1

S3


Number of Sellers

•The more sellers begin producing a good, supply increases!

•The curve shifts to the right (S1 to S2)


Price in Dollars

1000 2000 3000 4000 5000 6000

$1000

$0


S1

S2


Other Factors

• Expectations of future price• Can cause sellers to either increase or

decrease the current supply (ex: homes)

• Weather can affect supply• Can change supply of wheat/corn

Factors that Cause Change in Quantity Supplied

PRICE • Price is the only factor that will change the quantity supplied of a good.

Determinants of Supply

Can cause supply curve to shift to the left or rightResource CostsOther goods’ pricesTaxes/subsidiesTechnologyExpectations of producersNumber of sellers

Elasticity of Supply

Elasticity

Elastic = the Quantity supplied changes by a larger percentage than Price.

Example: Price rises 10% & Quantity supply rises by 15%

Elasticity =Percentage change in quantity supplied

Percentage change in price


Elasticity

Inelastic = the Quantity supplied changes by a smaller percentage than Price.





Elasticity

Unit-elastic = the Quantity supplied changes by the same percentage as Price.




Review

1. What affect does a rise in the cost of raw materials have on the cost of a good?(a) A rise in the cost of raw materials lowers the overall cost of

production.(b) The good becomes cheaper to produce.(c) The good becomes more expensive to produce.(d) This does not have any affect on the eventual price of a

good.2. When government actions cause the supply of a good to

increase, what happens to the supply curve for that good?(a) It shifts to the left.(b) It shifts to the right.(c) It reverses direction.(d) The supply curve is unaffected.

Review—True or False1. The law of supply states that as the price goes up, the

quantity supplied decreases.

2. Quantity supplied is the number of units of a good produced and offered for sale at a specific price.

3. A supply schedule is a numeric chart that illustrates the law of supply.

4. A supply curve is a graphic representation of the law of supply.

5. A vertical supply curve shows that supply is limited.

Review—True or False1. The law of supply states that as the price goes up, the

quantity supplied decreases. FALSE

2. Quantity supplied is the number of units of a good produced and offered for sale at a specific price.

TRUE

3. A supply schedule is a numeric chart that illustrates the law of supply.

TRUE

4. A supply curve is a graphic representation of the law of supply.

TRUE

5. A vertical supply curve shows that supply is limited. TRUE

Review—True or False1. Supply has decreased when the curve shifts to the left.

2. Resource prices affect the supply curve.

3. Advancement in technology will cause the supply curve to shift to the right.

4. Subsidies have the same effect on the supply curve as taxes.

5. Quotas are restrictions on the number of units of a foreign good that can enter the country.

Review—True or False1. Supply has decreased when the curve shifts to the left.

TRUE

2. Resource prices affect the supply curve. TRUE

3. Advancement in technology will cause the supply curve to shift to the right.

TRUE

4. Subsidies have the same effect on the supply curve as taxes. FALSE

5. Quotas are restrictions on the number of units of a foreign good that can enter the country.

TRUE

Homework

Determinants of Supply handoutDue Thursday 1/24

Wrap up

On your ticket, please write down 1 thing that made sense to you, and 1 thing about supply that did not make sense

discussion: supply. supply quantity supplied the amount of a good that sellers are willing to sell...

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