D & S (part 2)

What Is Supply? Supply: is a relationship between a product’s price and quantity supplied is shown using a schedule or curve The law of supply states there is a direct relationship between price and quantity supplied. 6

The Supply Curve Figure 2.5, page 35 Market Supply Curve for Strawberries Market Supply Schedule for Strawberries f S 0.50 1.00 1.50 2.00 2.50 e Price ($ per kg) Quantity Supplied (millions of kg) Points on graph d $1.50 5 d Price ($ per kg) 2.00 9 e 2.50 13 f 1 3 5 7 9 11 13 Quantity Supplied (millions of kg per year) 3

Changes in Supply (a) Changes in supply: are shown by shifts in the supply curve are caused by changes in supply determinants This is when price remains unchanged, the supply for the item changes Supply changes due to other factors besides price of that item This is when producers supply more at each possible price 7

Changes in Supply Market Supply Curve for Strawberries Market Supply Schedule for Strawberries 0.50 1.00 1.50 2.00 2.50 Price ($ per kg) Quantity Supplied (millions of kg) (S2) (S0) (S1) Price ($ per kg) $2.50 11 13 15 2.00 7 9 11 1.50 3 5 7 1 3 5 7 9 11 13 15 Quantity Supplied (millions of kg per year) 3

Supply Determinants (a) Number of Producers/Sellers Resource Prices Change in Technology Prices of Related Products Changes in Nature Producer Expectation

Supply Determinants (a) Number of producers (an increase causes a rightward supply shift) An increase number of Internet providers increases the supply of such service Resource prices (an increase causes a leftward supply shift) An increase in the prices of iron ore will increase the cost of producing steel and reduce its supply A decrease in prices of seed and fertilizers will increase the supply of corn 9

Supply Determinants (a) Resource prices (an increase causes a leftward supply shift) An increase in the prices of iron ore will increase the cost of producing steel and reduce its supply A decrease in prices of seed and fertilizers will increase the supply of corn 9

Supply Determinants State of technology (an improvement causes a rightward supply shift) (aka technological improvements) The development of fuel efficient engines reduced the cost of providing air service; the supply of # of flights increases

Supply Determinants Prices of related products If tablets are more profitable, producers will switch from producing desktop computers to tablets Higher profits from soccer balls entice producers to increase its supply and decrease the supply of volleyballs

Supply Determinants Changes in nature (an improvement causes a rightward shift for some products) A fire destroys forests, decreasing the supply of lumber

Supply Determinants Producer expectations (an expectation of lower prices in the future causes an immediate rightward supply shift) Producers expect the computer prices (selling price) to decrease next year, causing them to supply more of this item now

Changes in Quantity Supplied (a) are shown by movements along the supply curve are caused by price changes

Changes in Quantity Supplied 1 2 Quantity Supplied (millions of kg per year) Change in Quantity Supplied Price ($ per kg) 20 40 60 80 100 120 Change in Supply 1 2 Quantity Supplied (millions of kg per year) Price ($ per kg) 20 40 60 80 100 120 S0 S0 S1 b a 3

Change in Quantity Supplied Change in Supply Change in Quantity Supplied Movement from one point to another - from one price-quantity combination to another -on a fixed supply curve Change in the entire schedule or the entire curve A change in the quantity supplied of a good or service at every price

Do worksheet for hwk