Supply

Chapter 5 Section 1

• Supply – the amount of goods available• Law of Supply – the higher the price the larger

the quantity produced• Quantity supplied – how much of a good is

offered for sale at a specific price• As the price of a good rises, existing firms will

produce more in order to earn additional revenue

As price increases

Quantity supplied increases

As price falls

Quantity supplied falls

• If the price of pizzas rise, but the firms cost of making pizza stays the same the pizzeria will earn a higher profit

• With raising prices, a pizzeria will look like a good opportunity to make money

• Raising prices drew new firms to the market and added to the quantity supplied

1970’s and 1990’s

• 1970’s Disco– Disco is king• John Travolta, Kiss…• Record companies signed

more disco artists• Disco albums made a lot

of money• Disco lasted a short time• Early 1980’s stores could

not even sell disco albums

1979

• 1990’s– Grunge bands• Pearl Jam, Nirvana…• Record albums

produced more and more albums• Multiple bands were

signed

Supply Schedule

• Supply Schedule – shows the relationship between price and quantity supplied for a specific good. – Only has two Variables – factors that can change– Lower price – fewer goods supplied• Focus more on other items, breadsticks…

– Ceteris Paribus still applies

• Supply Curve – similar to demand curve only horizontal axis measures quantity supplied

• Market supply curve – for the whole city, region

• Elasticity– Orange trees• Inelastic… why?

• Price falls for oranges– Inelastic…. Why?

• Barbers– Elastic or inelastic?• Price rises• Options if prices rise?

• Supply can be elastic over time– Sell off land, plant more trees…