Chapter 5, Section 1 What is Supply?

What is Supply? Amount of a product offered for sale at all possible prices in the market.

Law of Supply Suppliers will normally offer more for sale at high prices and less at lower prices.

What to Supply? Suppliers have to figure out what to supply based on what is best for the consumer.

How do they decide what to supply?

Supply Schedule A listing of the various quantities of a particular product supplied at all possible prices in the market.

Individual Supply Curve Data from the supply schedule can be represented graphically in the supply curve.

Market Supply Curve The supply curve that shows the quantities offered at various prices by all firms that offer the product for sale in a given market.

Quantity Supplied The amount that producers bring to the market at any given price.

Change in Quantity Supplied The change in the amount offered for sale in response to a change in price.

Example 4 DVD’s are supplied at $15 each. Keeps going up if the price goes up; and vice versa.

Change in Quantity Supplied Interaction of supply and demand usually determines the final price for the product, but the producer has the freedom to adjust production.

Change in Supply Situation where suppliers offer different amounts of products for sale at all possible prices in the market.

Reasons for Changes in Supply Cost of Inputs Productivity Technology Taxes and Subsidies Expectations Government Regulations Number of Sellers

Cost of Inputs A decrease in the cost of inputs can cause an increase in supply

Productivity Motivated workers work more efficiently and this should increase supply

Productivity If workers are unhappy, unmotivated, and untrained, productivity may decrease causing a decrease in supply.

Technology Good technology increases supply, but bad or ineffective technology decreases supply.

Taxes and Subsidies Taxes are viewed as costs. If there are more taxes, this raises the cost of production and decreases supply. Vice versa

Subsidy A gov’t payment to an individual, business, or other group to encourage or protect a certain type of economic activity.

Subsidy Subsidies lower the costs of production because it is money paid to the company. Encourages current producers to remain in the market and for new producers to enter.

Expectations If producers think the price of their product will go up in the future, they may hold back some of their supply.

Producers may expect the opposite to happen. Expectations Producers may expect the opposite to happen. Example: DVD players (price high when first introduced)

Government Regulations If gov’t regulations are tighter or increased, then supply can decrease (causes problems for producer) Vice Versa

Number of Sellers More sellers in industry cause supply to increase (increases production) Vice Versa

Supply Elasticity A measure of the way in which quantity supplied responds to a change in price

Three Elasticities Supply Elasticity Inelastic Supply Unit Elastic Supply

Differences Only production considerations determine supply elasticity.