Supply Chapter 5

Supply  Supply-the amount of a product that would be offered for sale at all possible prices that could prevail in the market.  Because the producer is receiving payment for his or her products, more will be offered at higher prices.

Supply  Law of Supply- suppliers will offer more for sale at high prices and less at lower prices.  Illustration of Supply:  1.) supply schedule  2.) supply curve

Change in Quantity Supplied  The change in amount offered for sale in response to a change in price. $258 $20 6 $15 3 $5 0 $25 $20 $15 $

Change in Supply  Suppliers offer different amounts of products for sale at all possible prices.  Factors that cause a change in supply:  1. Cost of inputs- supply will increase because of a decrease in the cost of inputs such as labor or packaging; an increase in the cost of inputs will cause supply to decrease

Change in Supply  2. Productivity- It workers are motivated-increase in efficiently supply will increase, if workers are unmotivated, untrained, or unhappy-supply will decrease.  3. Technology-new technology tends to shift the supply curve to the right (Increase) and if new technologies do not work or equipment breaks down this would cause the curve to shift to the left (decrease).

Change in Supply  4. Taxes and Subsidies-firms view taxes as costs. High taxes-decrease in supply; lower taxes or no taxes-increase in supply.  Subsidies- a government payment to an individual, business, or other groups to encourage or protect a certain type of economic activity.  Subsidies lower the cost of production, encouraging current producers to stay in the market and new producers to enter-increase in supply.  No subsidies-costs goes up and producers leave the market, a decrease in supply.

Change in Supply  Expectations- if producers think the price of their product will go up, they may withhold some of the supply-decrease in supply.  If producers expect lower prices in the future, may try to produce and sell as much as possible right away- increase in supply.

Change in Supply  Government Regulations- new safety measures or other regulations-cost more money to produce-decrease in supply.  Relaxed regulations-increase in supply.

Change in Supply  Number of sellers- As more firms enter into the market, increase in supply.  If less firms enter and some other leave the market-decrease in supply.

Elasticity of Supply  Supply elasticity- is a measure of the way in which quantity supplied responds to a change in price.  What is the difference between supply elasticity and demand elasticity?  1 st : the number of substitutes has no bearing on the elasticity of supply.  2 nd : the ability to delay the purchase has no relevance to supply elasticity.  Only production considerations determine supply elasticity. If a firm can react quickly to higher or lower prices, then supply is likely to be elastic.

Elasticity of Supply  If the firm takes longer to react to a change in prices then supply is likely to be inelastic.