Supply Warm Up: What is a good you can LEAST do without? How much do you pay now, and how much would you be willing to pay for it before you stop using it? Explain whether this item is elastic or inelastic for you.

Nature of Supply 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. $200 Profit—The amount of money remaining after producers have paid for all their costs.

Market Supply Curve Price (in dollars) Output (slices per day) Supply

Production Costs Fixed Cost – cost that does not change, no matter how much of a good is produced include rent, buildings, machinery, etc. Variable Cost – a cost that rises or falls depending on how much is produced include wages, utilities, materials used in production, etc

Production Costs Total Cost = fixed costs + variable costs Marginal Cost – cost of producing one more unit of good Production Costs Total revenue Profit (total revenue – total cost) Marginal revenue (market price) Marginal cost Total cost (fixed cost + variable cost) Variable cost Fixed cost Beanbags (per hour) $ –36 – $ $24 24 — $ $ $ $ Total Cost = fixed costs + variable costs Marginal Cost – cost of producing one more unit of good Production Costs Total revenue Profit (total revenue – total cost) Marginal revenue (market price) Marginal cost Total cost (fixed cost + variable cost) Variable cost Fixed cost Beanbags (per hour) $ –36 – $ $24 24 — $ $ $ $

Elastic Supply Products with elastic supply can be: 1. Made quickly 2. Inexpensively 3. 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 lots 10 lots to sell—regardless of price Can charge more $ but cannot produce more ocean front lots.

Shift to the “Right”

Shift to the “Left”