Supply ©2012, TESCCC Economics Unit 4, Lesson 1

Objectives 1.Define supply. 2.Explain the law of supply. 3.Analyze the relationship between cost of production and cost that suppliers are willing to sell product. 4.Construct a supply schedule and supply cure. ©2012, TESCCC

Supply The amount that producers are willing and able to offer for sale at various prices. ©2012, TESCCC

Profit is what motivates producers so the higher the profit, the greater amount they will produce. ©2012, TESCCC

Law of Supply As the price of an item goes up, the quantity supplied will increase; as the price of an item goes down, the quantity supplied will decrease. P QS or P QS Direct relationship between price and quantity supplied (QS) Given production costs, a higher price means greater profits and an incentive for producers to increase quantity supplied. ©2012, TESCCC

Supply Schedule Price Quantity Supplied $ 5 50 $ 4 40 $ 3 30 $ 2 20 $ 1 10 ©2012, TESCCC

Supply S ©2012, TESCCC

Market Supply Schedule Shows prices and total quantity supplied by all producers in the industry. ©2012, TESCCC

Supply and Elasticity Measure of way suppliers respond to a change in price Elastic supply > 1 Inelastic supply < 1 Unitary elastic = 1 ©2012, TESCCC

Elasticity of Supply and Time Short Run – Supply inelastic. It takes time to switch production and in the short run it is hard for suppliers to respond to a price change Long Run – Supply becomes more elastic ©2012, TESCCC

Elasticity For example, if the price of apples increases dramatically, an apple producer cannot increase his output immediately. It will take some time for him to plant new apple trees and wait until they produce fruit. ©2012, TESCCC