SUPPLY On the other hand.

The Market is like two clapping hands! As of now we have one hand, DEMAND. But clapping doesn’t work without the second hand, so we need……… SUPPLY

What is the supply?? The willingness and ability of producers to produce a quantity of a good or service at a given price in a given time period.

You must change your mindset! Demand is concerned with consumers. Supply however, is dealing with firms or suppliers (for example???)

Law of Supply Under ceteris paribus, all other things being constant, a rise in the price for a good will result in an increase in the amount of quantity supplied! What kind of correlation is this?? Graph this correlation?

What does the curve look like??

Why will a supplier want to sell more at a higher price?? If you supply more at a higher price your revenue will be higher. This could also lead to a higher profit. (revenue – costs) More possibility for profit, more incentive to sell at a higher price!!

What are the Non-Price Factors that affect supply? Be careful this is not demand!!! Cost Availability of Production Factors Quality of Production Factors If one of these factors change we then have a ……………… of supply.

Our Taco Truck: What non-price factors will affect our taco stand’s supply?

Changes Non- Price Determinants of Supply Create Shifts- Examples: 1) Price of related goods (ex. Producer Substitutes)- roller skate companies can also produce what product? 2) Change in the Cost of the Factors of production (ex. Workers or raw materials 3) Expectations (Knowledge of a peak season or possible rise in prices) 4) A Change in Availability or Scarcity of Resources 5) A change in quality or efficiency of factors of Prodcution (ex. Better Production systems or Tech.) 6) Legislation (Laws) – limiting supply? Increasing Supply? Examples 7) Sales Taxes, Corporate Taxes 8) Subsidies

Effects Non-Price Determinants will have on Supply!! The Shifts!!! What has happened to price?? Nothing, the quantity supplied has changed at all price levels. Price only changes when we have supply and demand together.

What would make the Supply curve shift from S1 to S2??

What is the ultimate form of capital (non-human) used to supply goods in Vietnam?

Student Workpoint 2.3 Page 30 in your Course Companion Questions 1-7

Joint and Competitive Supply Joint Supply- When some goods are produced it automatically results in the production of other goods. ex. an increase in beef production increases the supply of hides (leather). Competitive Supply-Goods and services in competitive supply are alternative products that a business could make with its factor resources of land, labor and capital. For example a farmer produces corn for biofuel limiting the supply of corn available for use in food products.

A long, long time ago in a galaxy far, far away the forces of supply and demand joined together to create the PRICE MECHANISM

The Price Mechanism Putting supply and demand together on a graph, gives us what is know as an equilibrium price. How do we end up at the equilibrium price? What happens when the price is too high? Excess supply!! Too low? Excess demand/ A Shortage Price mechanism- the function that leads us to eq. price.

What happens when price is: $100? $80? $60?

What happens if we have a shift of one of the curves What happens if we have a shift of one of the curves? How do we describe this? If there is a shift in demand, what happens to price? Why? If price stays the same during this shift what do we end up with? And so therefore, price must go either up or down. What is happening to supply while this is occurring? Why?

Why does Qs change when demand shifts? Signaling Function-If there is an increase in the price of a good due to an increase in demand, then this gives a “signal” to producers that consumers wish to buy this good. Incentive Function- Since we assume that producers are rational and wish to maximize their profits then a higher price will give producers an incentive to produce more of a good.

Draw a S/D diagram where: Supply is shifting to the right. Give a reason as to why it is shifting. Explain specifically what is happening to the price and why. Explain what has happened to demand. (careful with language here.)