SUPPLY

Show Me the Money!!! REMEMBER: It’s all about

How many hours would you work? $1 $5 $7 $10 $15 $20 $25 $100 You need to earn extra money. You are considering applying for a part-time job. List the number of hours you are willing to work per day at each of the following hourly rates. REMEMBER – you must still attend school! Sleep is optional!

WHAT IS SUPPLY?

What is Supply? Describes the behavior of producers Amount of goods and services suppliers are willing and able to produce at all possible prices in the market

Supply Schedules Individual supply Market supply supply of an individual producer Market supply supply of all producers in the market Price Quantity Supplied $10 2 $20 25 $30 50 $40 75 $50 100 Price Quantity Supplied $10 20 $20 250 $30 500 $40 750 $50 1000

Summing Individual Supply Curves to Find the Market Supply Curve

Supply Curve The supply curve is the graphic representation of the law of supply. The supply curve slopes upward to the right. The slope tells us that the quantity supplied varies directly – in the same direction – with the price.

Millions of pizzas per week Supply Curve The supply curve is the graphic representation of the law of supply. The supply curve slopes upward to the right. The slope tells us that the quantity supplied varies directly (in the same direction) with the price. 12 16 20 24 28 Millions of pizzas per week $15 9 6 3 Price per pizza S

Millions of pizzas per week The Law of Supply There is a direct relationship between price and quantity supplied. Other things held constant: As $ h QTY Supplied h As $ i QTY Supplied i 12 16 20 24 28 Millions of pizzas per week $15 9 6 3 Price per pizza S

The Law of Supply There is a direct relationship between price and quantity supplied. Quantity supplied rises as price rises, other things constant. Quantity supplied falls as price falls, other things constant. $ Price S Quantity Supplied

The Law of Supply The law of supply is accounted for by two factors: Assuming firms’ costs are constant, a higher price means higher profits. When prices rise, firms substitute production of one good for another.

Supply vs. Quantity Supplied

Supply vs. Quantity Supplied Supply is the entire relation between the price and quantity supplied, as reflected by the supply schedule or supply curve. Quantity supplied refers to a particular amount offered for sale at a particular price, as reflected by a point on a given supply curve.

Change in Quantity Supplied Quantity supplied = specific amount that will be supplied at a specific price Change caused by: change in price of the product Effect: movement along a supply curve $20

Change in Supply Change caused by: Effect: anything other than a change in price Effect: Shift in supply

Determinants of Supply

Determinants of Supply (things other than the price of the good) Government – taxes, subsidies, regulations Resources – cost of productive resources Expectations – with regards to price in future Number of sellers - Technology -

How Government Affects Supply

Ways Government Affects Supply Excise Taxes What: tax on production Effect: increases production costs and decreases supply Subsidies What: Payments to businesses by the government to encourage or protect it Effect: lowers production costs and increases supply

Ways Government Affects Supply Quotas What: Limited or fixed number Effect: decreases supply by reducing the amount available to be sold Regulations What: Government rules or requirements Ex: filters, fire protection Effect: increases production costs and decreases supply

Price of Resources (aka costs of production) When production costs increase, profits decrease, so the incentive to supply also goes down. Supply decreases = shifts left If costs go up substantially, the firm may even shut down. When production costs decrease, profits increase so the incentive to supply also increases. Supply increases = shifts right

Expectations If suppliers expect prices to rise in the future, they may store today's supply to reap higher profits later. Supply would decrease If suppliers expect prices to decrease in the future, they may sell more supply today to reap higher profits. Supply would increase

Number of Sellers in the Market More sellers in the market increase supply Fewer sellers in the market decrease supply

= increase in supply and curve shifts to the right Technology Advances in technology reduce the number of inputs needed to produce a given supply of goods. Costs decrease, profits increase, leading to increased supply. = increase in supply and curve shifts to the right

Change in Profit Producing Opportunities If producers think they can make more by selling something else, supply of the current good will decrease.

Let’s practice!

Let’s Practice Is it a shift or movement? For each of the following situations, hold up your arrows to indicate if the curve would shift. If it is just a movement along the curve you don’t need to hold up any arrows!

what would happen to supply of… cars when open-trade agreements bring in new producers? S Shift right Increase in sellers in the market S1 $ Price Quantity Supplied

what would happen to supply of… coffee when freezing temperatures hit the major coffee-producing regions of Brazil and Costa Rica? S1 Quantity Supplied $ Price S Shift left Natural disaster decreases inputs

what would happen to supply of… Lumber when a new computer-assisted saw reduces the cost of lumber? Quantity Supplied $ Price S S1 Shift right New technology decreases production costs

what would happen to supply of… Gasoline today if there is an expected shortage and higher prices likely to occur next week? S1 Quantity Supplied $ Price S Shift left Sellers want higher future price, so they decrease their supply today

what would happen to supply of… corn if the U.S. Senate gives a bonus to small family farms that grow and produce corn. Quantity Supplied $ Price S S1 Shift right Government subsidy to corn farmers

what would happen to supply of… Athletic equipment if the price of athletic equipment has decreased? Quantity Supplied $ Price S Movement!!! Quantity supplied will decrease Only the PRICE decreased!

Practice with a partner Reasons for Changes in Supply

Practice on your own Supply shifters

EXTRA CREDIT! Make them decide if it’s supply or demand! homework! As in, it BETTER be done when you come to class! Create a Business! Create a worksheet to include the following 4 scenarios for your business Supply Shift the curve for your product Movement Along the Curve for your product Demand EXTRA CREDIT! Make them decide if it’s supply or demand!

Printable Page Your Text Here

Static Slide Page Your Text Here

Taxes and Subsidies When taxes go up, costs go up, and profits go down, leading suppliers to reduce output. When government subsidies go up, costs go down, and profits go up, leading suppliers to increase output.

what would happen to supply of… Quantity Supplied $ Price S