Chapter 5 : Lesson 1 What is Supply

Essential Question: Why do supply and demand curves slope in opposite directions?

Supply : amount of a product a producer or seller would be willing to offer for sale at all possible prices in a market at a given point in time

Supply Everyone who offers an economic product for sale is a supplier. YOU will be more willing to supply more labor at a higher wage than you would for a low one. It is reasonable to predict that the higher the price, the greater quantity the seller will offer for sale.

Supply What is the nature of demand? Supply is almost the mirror image of demand. It describes the other half of the market which provides products for those who demand them.

Supply Schedule is a listing that shows the quantity supplied at each and every price.

Supply Curve: shows the same information in the form of a graph. It always slopes upward to the right. This is the opposite of the demand curve.

A supply schedule and curve.

Law of Supply: principle that more will be offered for sale at higher prices than at lower prices. If prices are low, they will offer smaller quantities for sale.

Quantity Supplied: specific amount offered for sale at a given price; point on the supply curve.

Change In Supply: different amounts offered for sale at each and every possible price in the market; shift of the supply curve. This is shown on the supply curve by a movement along the curve.

Change in Quantity Supplied For example, 350 T-shirts are supplied when the price in $30. If the price decreases to $24, 300 T-shirts are supplied. If the price then changes to $21, 240 T-shirts are supplied. These changes illustrate a change in the quantity supplied.

Change in Supply Sometimes producers offer different amounts of products for sale at all possible prices in the market. This is known as a Change in Supply. This is shown on the supply curve by a shift in the entire curve.

Supply Elasticity: tells how much a change in price affects quantity supplied. Just as demand has elasticity, there is elasticity of supply.

Seven Factors that Can Cause Change in Supply

1. Cost of Inputs In the T-shirt example, if the cost of ink or cotton goes down, then producers can produce more t-shirts at each and every price. The supply curve would shift right. If the cost of inputs increases, producers would not be willing to produce as many shirts at each and every. The supply curve would shift left.

2. Productivity – If management trains workers to be more efficient then productivity increases. The supply curve shifts to the right because more shirts are produced at every possible price in the market.

3. Technology – New technology almost always shifts the curve to the right. The introduction of a new machine, chemical, or industrial process can affect supply by lowering the cost of production. New technology does not always work as expected. Equipment might break down or parts may be difficult to obtain.

4. Number of Sellers – The supply curve represents all producers. Thus, when new suppliers enter the market supply increases, or shifts to the right. If some sellers leave the market, fewer products are offered for sale at all possible prices. Supply decreases, and the supply curve shifts to the left.

5. Taxes and Subsidies – They have the same impact as cost of inputs. If the producer’s inventory is taxed, the cost of production increases. (Shift to the left) If the government provides subsidies, the cost of production decreases. (Shift to the right)

6. Expectations – The anticipation of future events. If producers expect future price increases, they will withhold some of the supply, shifting the curve left. If producers expect future price decreases, they will flood the market, shifting the curve right.

7. Government Regulations - When government places mandates on producers, the cost of inputs increases, shifting the curve to the left. For example, when government mandates new auto safety features such as stronger bumpers, air bags, and emission controls, cars cost more to produce.

Review Question: Chapter 5 : Lesson 1 Read pages 128-135 and answer Review Questions on page 135. Hand in Google Class Room.