Law of Supply What Makes A Producer Provide the Quantity of Goods & Services?

Take Notes! Use page pg. 22 Take notes underneath the graph sheet you’re pasting into your notes.

What is Supply? Supply indicates how much a good producers are willing and able to offer for sale per period at each possible price.

Law of Supply As a good’s price increases or decreases, the quantity suppliers are willing and able to supply increases or decreases. The quantity supplied is usually directly related to its price PQS

Supply Schedule & Curves A Supply Schedule displays the quantity of a product supplied at each price PriceBottles Supplied

A Supply Curve shows a graphic representation of the quantities of a good supplied at various prices Graph 2 individual Supply curves for Firms A and B using the Supply Schedule on the previous slide

Opportunity Cost of Supplying a Good Supplier costs are opportunity costs Suppliers choose among alternatives based on expected benefit/cost Producers must pay to use resources Resource price reflects its next-best alternative

Changes in Supply vs. Change in Quantity Supplied Change in a good’s own price causes change in quantity supplied Movement along the supply curve S1 Change in supply caused by change in determinant of supply Shifts supply curve

Determinants of Supply Price of Relevant Resources Those resources employed in the production of a good. Government Tools (Restrictions) Taxes, quotas, licenses, etc.

Determinants con’t Technology If more efficient technology is discovered production costs will fall So suppliers will be more willing and able to supply more of the good at each price Competition/Number of Producers # of Prod. Increases # of supply

Determinants con’t Price of Related Goods Goods connected in some way to the good you’re producing (like Starbucks selling both coffee AND tea) Producer Expectations Shift production according to future prices

Elasticity Elastic Supply- Ask yourself: “Can I make it cheaply, quickly, easily?” “Are the resources to make it easy or hard to find?” Can be made quickly, inexpensively, using few, readily available resources Ex: anything at the 99 cent store!

A small change in the price of the good being produced causes a large change in the quantity of that good you will supply.

Elasticity Inelastic Supply Ask yourself: “Is it hard to make?” “Does it take skilled labor to make it?” “Is it hard to find the resources to make it?” Expensive, labor-intensive, resources not readily available Think “Precious stuff you probably pay good money for” Ex: A diamond ring, producers can’t easily change production to meet changing consumer demand

If a producer can’t increase supply even if the price goes up, supply is perfectly inelastic any decrease in product price, no matter how small, causes the supply for the product to immediately fall to zero.

Elasticity = % Change In Quantity / % Change In Price