Supply J.A.SACCO

SUPPLY Quantity supplied Price once again the KEY!! The amount of a good, service, or resource that a producer is willing and able to sell at each and every price during a specified period of time, ceteris paribus. Price once again the KEY!! The Law of Supply Other things remaining the same, If the price of a good rises, the quantity supplied of that good increases. If the price of a good falls, the quantity supplied of that good decreases.

SUPPLY The price of a product or service and the quantity supplied are directly related. P QS P QS

Supply Profit Motive Revenue > Cost of Production = Profit Why is there a direct relationship between price and the quantity supplied. Profit Motive Revenue > Cost of Production = Profit

SUPPLY Supply schedule Supply curve A list of the quantities supplied at each and every price when all other influences on selling plans remain the same. Supply curve A graph of the relationship between the quantity supplied and the price of the good when all other influences on selling plans remain the same.

SUPPLY

SUPPLY Individual Supply and Market Supply Market supply The sum of the supplies of all sellers in a market. The market supply curve is the horizontal sum of the supply curves of all the sellers in the market.

SUPPLY

SUPPLY Changes in Supply Change in supply A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes. A change in supply means that there is a new supply schedule and a new supply curve.

SUPPLY Figure shows changes in supply. 1. When supply decreases, the supply curve shifts leftward from S0 to S1. 2. When supply increases, the supply curve shifts rightward from S0 to S2. When you draw a shift of the supply curve, again be careful to draw the arrows in the horizontal direction. Follow the text by always describing shifts of supply curves as “rightward” or “leftward.” Do not say that the curves shift “up” or “down.” This description of a shift is especially confusing for the supply curve. A rightward shift of the supply curve makes it look as if the curve is moving lower. Students who do not think in terms of “rightward” and “leftward” believe this shift reflects a decrease in supply, which is wrong. Get the student to always go left and right and draw the shift arrows too.

CHANGE of SUPPLY The main influences on selling plans that change supply are Prices of resources and other Inputs Productivity/Technology Expectations Government tools Number of sellers Prices of related goods

4.2 SUPPLY Price of inputs Supply Shift Left Price of inputs Supply Prices of Resources and Other Inputs Resource and input prices influence the cost of production. Price of inputs Supply Shift Left Price of inputs Supply Shift Right

CHANGE of SUPPLY Productivity/Technology Productivity is output per unit of input. An increase in productivity lowers costs and increases supply. For example, an advance in technology. A decrease in productivity raises costs and decreases supply. For example, a severe hurricane.

EXPLAIN CHANGE of SUPPLY Expectations Expectations about future prices influence supply. Expectations of future input prices also influence supply. EXPLAIN

CHANGE of SUPPLY Government Tools: Subsidies/Regulations/Taxes

CHANGE of SUPPLY Number of Sellers The greater the number of sellers in a market, the larger is supply.

CHANGE of SUPPLY Substitute in production Prices of Related Goods A change in the price of one good can bring a change in the supply of another good. Substitute in production A good that can be produced in place of another good. For example, a truck and an SUV in an auto factory. The supply of a good increases if the price of one of its substitutes in production falls. The supply a good decreases if the price of one of its substitutes in production rises.

CHANGE of SUPPLY Complement in production A good that is produced along with another good. For example, cream is a complement in production of skim milk in a dairy. The supply of a good increases if the price of one of its complements in production rises. The supply a good decreases if the price of one of its complements in production falls.

CHANGE of SUPPLY Change in Quantity Supplied Versus a Change in Supply A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good. Change in supply A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.

Quantity Supplied/Change in Supply Figure illustrates and summarizes the distinction

Graph each example for supply and determine whether there is a shift or a change in quantity supplied. Give reasons for each example. Cost of iron production has dropped, what is the supply of tanks to the military. Federal government made it mandatory to build safety features on all textile mills, what is the supply of clothing to the garment industry. The price of apples has increased, what is the supply of pears? Price of hammers has increased, what is the supply of hammers? Halloween is approaching, what is supply of candy? The government has stopped all subsidies to the auto industry, what is the supply of Ford trucks? Microsoft has introduced 10 new games for the XBOX 360, what is the supply of new PS3 games? Increase of business tax on profits, what is the supply of steel in the steel industry? Price of rubber increases, what is the supply of Goodyear tires? Price of shirts increases, supply of shirts. New computer chip is invented, supply of computers? Price of corn(common) decreases, what is the supply of wheat?