Nature of Supply –Ch. 4.1

Supply—is the quantity of goods and services that producers are willing to offer at various prices during a given time period.

The Quantity Supplied—is the amount of a good or service that a producer is willing to sell at each particular price.

The Law of Supply

Law of Supply—States that producers supply more goods when they can sell them at higher prices and fewer goods when they must sell them at lower prices.

Ex. MP3 players at $300 vs. $200Profit—The amount of money remaining

after producers have paid for all their costs.

Profit Motive

Costs of Production—Include wages, rent, interest on loans, utility costs, raw materials, used to manufacture a product.

Profits and Markets

Profit motive helps direct the use of resources in the entire market.

Ex. Sell bicycles for $150 and company increases production(supply). Encourages competition to increase its

supply of $150 bikes.Encourages new companies to start up.All are pursuing profits!

Supply Schedules and Curves

Supply Schedule—Tool that shows the relationship between the price of a good and the quantity producers will supply.

Supply Curve--Plots on a graph the relationship between the price of a good supplied and the quantity producers will supply.

Note: Supply curve always slopes upward. Note: Demand curve always slopes

downward.

Elasticity of Supply

Elasticity of Supply—is the degree to which price changes affect the quantity supplied.

Elastic Supply—Exists when a small change in price causes a major change in the quantity supplied.

Elastic Supply

Products with elastic supply can be:1. Made quickly2. Inexpensively3. Use a few readily available resources Sports teams apparel—tee

shirts,hats Ex. Super Bowl championship

Demand soars, prices rise, supply increases.

Inelastic Supply

Inelastic supply—exists when a change in a goods price has little impact on the quantity supplied.

Inelastic supply if production requires:1. Time

2. Money

3. Resources not readily available

Ex. Gold, fine art, space shuttles, etc.

Inelastic Supply

Perfect inelastic supply exists when producers, regardless of price, cannot increase the quantity supplied.Ex. Ocean front lots10 lots to sell—regardless of priceCan charge more $ but cannot produce

more ocean front lots.