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Section 1-Preview
Section Preview
In this section, you will learn that the higher the price of a product, the more of it a producer will offer for sale.
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Section 1-Key Terms
Content Vocabulary
• supply
• Law of Supply
• supply schedule
• supply curve
• market supply curve
• quantity supplied
• change in quantity supplied
Academic Vocabulary
• various • interaction
• change in supply
• subsidy
• supply elasticity
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Section 1
• Supply is an amount of product offered for sale at various prices.
• Law of Supply: Producers will offer more product at higher prices and less at lower prices
What is Supply?
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Law of Supply When the price of a product goes up, quantity supplied goes up. When the price goes down, quantity supplied goes down.
VS 1
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Section 1
An Introduction to Supply
Supply can be illustrated by a supply schedule or a supply curve.
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Section 1
An Introduction to Supply (cont.)
• Suppliers must determine how much to offer for sale at various prices, taking into account the factors of production.
• Like demand, supply can be shown in the form of a table—a supply schedule.
• When information is plotted on a graph, it forms the supply curve.
Supply of Compact Discs
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Section 1
An Introduction to Supply (cont.)
• Normal supply curves have a positive slope—prices go up; quantity supply goes up.
• Economists are more interested in the market supply curve than for a single firm.
Individual and Market Supply Curves
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Section 1
An Introduction to Supply (cont.)
• The quantity supplied is the amount producers bring to market at any given price.
• A change in price leads to a change in quantity supplied.
• Although the producer has the freedom to adjust production up or down, the interaction of supply and demand usually determines the final price of a product.
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An Introduction to Supply (cont.)
Price of Ice Cream Cone
Quantity Supplied of Ice Cream Cones
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Figure 5 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.
An Introduction to Supply (cont.)
Price of Ice Cream Cones
Quantity Supplied of Ice Cream Cones
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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
An Introduction to Supply (cont.)
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Figure 1
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Section 1
Change in Supply
Several factors can contribute to a change in supply.
• Change in Supply– A shift in the supply curve, either to the left or right. – Caused by a change in a non-price determinant of
supply.
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Section 1
• A change in supply occurs for several reasons.
1.Cost of resources2.Productivity3.Technology4.Taxes 5.Subsidy6.Expectations7.Government regulations8.Number of sellers
Change in Supply (cont.)
A Change in Supply
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Figure 7 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
Change in Supply (cont.)
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For an given rental price, quantity supplied is now lower than before.
Change in Supply (cont.)
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Figure 3
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Section 1
Elasticity of Supply
The response to a change in price varies for different products.
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Section 1
• Supply, like demand, has elasticity.
• Supply elasticity measures how the quantity supplied responds to a change in price.
Elasticity of Supply (cont.)
Elasticity of Supply
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Figure 4
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Section 1
• Supply elasticity has three forms:
– Elastic
– Inelastic
– Unit elastic
Elasticity of Supply (cont.)
Elasticity of Supply
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Section 1
• Supply elasticity is based solely on production considerations.
• A firm’s ability to adjust to new prices quickly is likely to be elastic.
• A firm that takes longer to react to a change in prices is likely to be inelastic.
Elasticity of Supply (cont.)
Elasticity of Supply