Law of Supply Supply Schedule Price Quantity $50 100 $40 90 $30 70 $20 30 $10 10 $5 1 Supply Schedule Price Quantity $50 275 $40 225 $30 180 $20 105 $10 55 $5 30 -Supply -the amount of a particular good/service that producers will supply at a given price Offer different quantities of a product depending on the price buyers will pay Offer more at higher prices and less at lower prices -Law of Supply -as the price of a good/service increases then producers will supply more of the product and as the price decreases they will supply less. Driven to make profit PRICE Supply Curve   QUANTITY

Diminishing Returns -the law of supply says that producers will supply more at a higher price but this is limited -diminishing returns -the producer can only produce so much of the product before its cost is more than the profit received from its sale -Ex.—You can only increase factory production so far until a larger factory is needed which may be more costly than its worth There is only so much product that can be made in one factory. For that reason, some companies will build larger factories to increase production. Sometimes this works well for companies, other times it does not. For some companies, the price of building the new factory will not match the profits made from that factory. Therefore, it is not beneficial for them to build a new one. They will experience diminishing returns.

Elasticity -Elasticity -Is the degree to which a change in price affects the supply for the product -Elastic Supply -a change in the price does affect the quantity supplied –easily able to produce more -Inelastic Supply -change in the price does NOT affect the quantity supplied –hard to produce more A product like oil is said to have inelastic supply, meaning that if the price of oil changes, the quantity supplied will not change much because it is hard to produce oil (and other natural resources). However, for items that are easy to produce, like clothes or cars, the price does affect how much will be supplied. Remember, the companies’ main focus is to make PROFIT.

Changes in Supply Caused by: productivity, cost of resources, company expectations, government policy, taxation, and alternative products. P R I C E DECREASE in Supply QUANTITY PR I CE INCREASE in Supply QUANTITY

-the amount of a good/service that can be produced in a given time Productivity -Productivity -the amount of a good/service that can be produced in a given time -Increases in productivity allow producers to make more of a product in a given time and at the same price which decrease cost and increases profits -better technology is a major focus of increasing productivity All companies want to increase their productivity, the amount of a good or service they can accomplish in a given time, because it allows them to make more and to pay less overall while making that product. This will increase their overall profits. Better technology, especially in the assembly line process, helps companies do this.

Businesses charge more when they have to pay more to make a product Cost of Resources -The cost of the materials that go into goods and services can affect the production costs which affect the amount which can be supplied at each price level Businesses charge more when they have to pay more to make a product -Examples -higher wages lowers supply Pay people more, lowers profit -cheaper resources increase Price of materials goes up When companies make products, they must consider how much their resources (the stuff they need to make the product) will cost them. What resources are needed to make this Snickers bar? What happens if the cost of those resources increases? Will they produce more or less? What happens if the cost of those resources decreases? Will they supply more or less?

Expect to sell more = make more Company Expectations -Producers as well as consumers make economic plans. A company that expects record sales or few sales will adjust its supply levels Expect to sell more = make more -Economic forecasts by the government become very important to large producers Stock market quotes Value of money Tax changes Firms use economic forecasts to tell how the economy is doing. When the economy is doing well, and the stock market is growing, they will produce more because they expect to sell more. But, if the economy is doing poorly, or if the company is doing poorly, they will expect to sell less, so they will produce less so that they do not lose money.

-Governments can affect suppliers in many ways Government Policy -Governments can affect suppliers in many ways -More Regulations or fewer regulations producers must follow can affect supply levels Tighter government rules tend to restrict supply (cost companies more money) -Gov’t subsidies can help some producers cut costs to increase supply levels while fewer subsidies cause production costs to rise Subsidy = government payment to an individual or company (ex: farms) Subsidies are monies paid to people by the federal government to help them offset the cost of production. For example, farmers incur many costs when producing food for Americans. Therefore, to help them produce this food at a lower cost, the government gives farmers money in the form of a subsidy every year. That makes it cheaper for the farmers to produce, which keeps their prices down and their profits up.

Taxation Policies -Taxes—higher or lower taxes affect the overall profit level which determines supply To companies, taxes they pay are just another cost -lower taxes means greater profits and more supply Lower taxes means more money for companies -higher taxes means fewer profits and less supply Higher taxes means less money for companies

Alternative Products -Supply can also be affected by other products that producers could supply -If price falls for one product then they will supply less and shift production to another type product Always want to make the most money; produce goods that get the most money