Price Quantity Demanded $1 100 $2 90 $3 70 $4 40 Law of Demand: At a given point in time, a rise in price causes a fall in quantity demanded. At a given point in time, a fall in price causes a rise in quantity demanded. WE KNOW PRICES CHANGE DEPENDING ON DEMAND FOR A PRODUCT AND HOW MUCH IS SUPPLIED, SO WHAT DETERMINES SUPPLY?

Law of Supply Producers will offer more of a good as its price goes up. (Individual firms will raise their level of production) Depends on their ability to raise or lower output New firms will enter the market If price goes down, opposite would be true Price As price increases… Supply Quantity supplied increases Price As price falls… Supply Quantity supplied falls PRICE UP=RECOGNIZE CHANCE TO MAKE MORE $, SO WILL WORK HARDER. PRICE DOWN=DISCOURAGED FROM PRODUCING AS MUCH BEFORE

Supply Curve: The supply curve- model that shows relationship between the price of an item and the quantity supplied Price Quantity SEEMS COUTERINTUITIVE THAT PRODUCERS WILL OFFER MORE OF A GOOD AS ITS PRICE GOES UP BUKT CAN BE CONE IF THEY’RE ABLE TO RAISE OUTPUT

Supply: the amount of goods available Quantity Supplied - the amount that producers wish to sell at a specific price. SUPPLY AND QUANTITY SUPPLIED ARE NOT THE SAME THING! QUANTITY SUPPLIED REFERS TO HOW MANY OF A GOOD WILL BE BOUGHT & WILL ALWAYS BE A NUMBER

Elasticity of Supply: A measure of how quantity supplied reacts to a change in price unresponsive to change in price=inelastic (<1) very sensitive to change=elastic (>1) When % change in supply is equal to % change in price, it is unitary elastic (1)

Elasticity of Supply: INELASTIC SUPPLY- Difficulty increasing supply in response to a rise in price. Nuclear power plants Homes in highly developed area ELASTIC SUPPLY- increase in price causes a bigger % change in supply. Can easily increase supply in response to rise in price. Firms operating below full capacity. Barbers can hire more workers if price of haircuts increases

Elastic: Supply sensitive to a change in price If price of an oil change increases, repair shop owner could hire more workers & increase supply of oil changes Supply Price Qty

Inelastic: Supply insensitive to a change in price Tickets to a NFL football game Stadium owners can’t increase supply of seats greatly in short term Supply Price Qty

Perfect Inelasticity: Here the price of a product will have no effect on the supply Elasticity is equal to zero Quantity is essentially fixed Land Supply Price Qty

What Determines Supply? (SUPPLY SHIFTERS!) Cost of Inputs/Resources – most important!) Changes in Cost of Production/ Natural Disaster Outsourcing Technology Number of Producers/Suppliers (Other Sellers) Government Influence Taxes, Subsidies, & Environmental Regulation Producer Expectations / Future Price Expectations (Short Run & Long Run Costs) ALWAYS THINKING OF/SEARCHING FOR MAX PROFIT! WHAT’S THE LOWEST AMOUNT OF $ I WOULD ACCEPT FOR PROVIDING A GOOD/SERVICE? HOW MANY RESOURCES WILL BE SUPPLIED AT EACH PRICE?

Changes in Cost affect Supply: Any change in cost of an input such as the raw materials, machinery, or labor used to produce a good, will affect supply.

Changes in Cost affect Supply As input costs increase, the firm’s marginal costs also increase, decreasing profitability and supply.

Changes in Cost affect Supply Input costs can also decrease. New technology can greatly decrease costs and increase supply.

http://www. criticalcommons http://www.criticalcommons.org/Members/jtierney86/clips/big-bang-theory-outsourcing-a-date/view

TECHNOLGY- IMPROVEMENT INCREASES SUPPLY-SHIFTS TO THE RIGHT! Ford opened Model T plant in 1913, produced one Model T every 93 minutes, remarkable reduction from 728 minutes 1927, one automobile every 24 seconds. In part because of efficiency, Model T's price dropped from $1,000 (1908) to under $300 (1927).

Number of Suppliers: If more firms enter a market, the market supply of goods will increase Wegman’s, Tops Hart’s Trader Joe’s Aldi If firms leave the market, supply will decrease.

Govt. Interventions & Supply: By raising or lowering the cost of producing goods, the govt. can encourage or discourage an entrepreneur or industry from producing with : Subsidies Taxes Regulation

Govt. Influence- Subsidies: SUBSIDY- benefit given by the govt. to groups or individuals, usually as a cash payment or tax reduction. Typically given to remove some type of burden, & often considered to be in overall interest of the public. Typically causes the supply to increase

Taxes: The govt. can reduce the supply of some goods by placing an excise tax on them. excise tax -tax on the production or sale of a good.

Excise Tax: Two major uses: To discourage the use of a good To help maintain competition in domestic industries

Example - Cigarettes

Regulation The govt. steps into a market to affect the price, quantity, or quality of a good. Usually raises costs.

Regulations Government intervention in a market through indirect means. Safety Regulations Environmental Laws

What would the effect of a frost be on the orange juice market in both the short & long term? COST OF PRIODUCTION INFLUENCED BY RESOURCE AVAILABILTY

Producer Expectations Changes in producers' expectations about the future can cause a change in the current supply of products. http://www.criticalcommons.org/Members/jtierney86/clips/the-ranch- market-forces

Supply depends on time frame If apple prices go up, what can apple orchard owners do short run? Apple trees take a long time to grow Hard for new farmers to enter market Short run: Supply is inelastic BUT OVER TIME... Could plant more trees, hire more workers Firm has enough time to alter all of its fixed costs Long run: (not a set period of time): supply is elastic

Was there ever a time that you didn’t buy a certain good because you knew the technology would soon be outdated?

The Global Economy: The supply of imported goods & services are affected by changes in other countries Govt. import restrictions cause a decrease in the supply of restricted goods.