ECONOMICS

Chapter 5: Supply

DEFINITIONSupply is the willingness and ability of producers to offer goods and services for sale.

Producers willing to sell more of product at higher than at lower price

Law of Supply:

The Law of SupplyExample: Price and Supply Smiths sell tomatoes at farmers’ market

willing to offer 24 pounds at standard price of $1 per pound

willing to offer 50 pounds at $2 per pound

willing to offer 10 pounds at 50 cents per pounds

not willing to supply any tomatoes below 50 cents

Supply Schedules Individual Supply Schedule

Supply schedule is two-column table○ left-hand column lists various prices of a

good or service○ right-hand column shows quantity

supplied at each price

Market Supply Schedules

Market supply schedule format similar to supply schedulequantities supplied are much largermarket quantity supplied also depends on

price

Market research used to create market supply schedulesome producers want to learn prices,

amount offered by all in market

Applying Economics Concepts Imagine that you own a health food

store that sells several brands of nutrition bars. Create a supply schedule showing how many bars you would be willing to sell each month at prices of $5, $4, $3, $2, $1.

Supply Curves

Individual Supply CurveSupply curve is graphic

representation of law of supplySupply schedule and curve based

on following assumption:○all economic factors except price

remain the same

Supply Curves

Market Supply CurveMarket supply curve differs in scope from

individual supply curve○ both constructed same way

Supply curves for all types of producers follow law of supply○ will provide more at higher prices although costs

more to produce more○ Why?

higher prices signal potential for higher profits

Applying Economics Concepts Use the supply schedule for nutrition

bars you created earlier to create a supply curve.

Critical Thinking

1. Why does a supply curve slope upward?

2. How is the law of supply similar to the law of demand? How is it different?

3. Focus on one item you buy regularly for which the price has changed. How did this change in price influence supply?

Critical Thinking

4. Create a market supply curve for skis using the market supply schedule below.

Price per Pair ($) Quantity Supplied

500 600

425 450

350 325

275 225

200 150

125 100

Critical Thinking

5. Write a brief explanation of the graph you created in #4

6. Why might producers not always be able to sell their products at the higher prices they prefer? Think about the law of demand and supply and the different attitudes that consumers and producers have towards price.

7. How might the market resolve this difference?