Understanding Supply

Chapter 5 Section 1

Supply – the amount of goods available Law of Supply

◦ Producers offer more of a good as its price increases and less as its price falls

The Law of Supply

Law of SupplyPrice Supply

Higher production = higher profit Market Entry – more want in on the business

◦ Example – all the different pizza places in Avon

Why Does Supply Increase

Price Per Slice of Pizza Slices Supplied Per Day

$1 100

$2 150

$3 200

$4 250

$5 300

$6 350

Supply Schedule

Can You Graph This?

Elasticity of Supply◦ A measure of the way quantity supplied reacts to

a change in price◦ More than 1 = Elastic, Less than 1 = inelastic

Equal to 1 = Unitary Elastic

Supply and Elasticity

Elasticity of Supply Depends on TIME◦ Supply in the short run

Business have trouble adjusting to changes in price in the short term Supply is inelastic

◦ Supply in the long run Over time, adjusts are made

Supply is more elastic

Supply and Elasticity