Sutherland Module 6 Supply

QUIZ 3-INTRO TO SUPPLY 1. WHAT IS THE LAW OF SUPPLY? 2. DRAW A SUPPLY SCHEDULE (GO OUT FIVE PLACES) 3. TRANSFER YOUR SUPPLY SCHEDULE TO THE SUPPLY CURVE 4. SHOW A MOVEMENT ALONG THE SUPPLY CURVE (ONE WAY OR THE OTHER) 5. WHAT REASON WOULD CAUSE # 4 TO OCCUR? 2

What is supply? Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices. What is the Law of Supply? As price increases, the quantity producers make increases As price falls, the quantity producers make falls. THIS IS THE OPPOSITE OF DEMAND Why? Because, at higher prices profit seeking firms have an incentive to produce more. 3 3

GRAPHING SUPPLY EXAMPLE Supply Schedule Price of Cereal $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o 10 20 30 40 50 60 70 80 Q Quantity of Cereal 4

GRAPHING SUPPLY Supply Schedule Price of Cereal Supply $5 50 $4 40 $3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o 10 20 30 40 50 60 70 80 Q Quantity of Cereal 5

THIS IS EXAMPLE OF JUST ONE SUPPLIER IN THE MARKET PLACE, BUT WHAT IF ANOTHER SUPPLIER ENTERS THE MARKET PLACE BECAUSE PROFITS LOOK GOOD? 6

As with demand, market supply is arrived at by horizontally adding up the individual supplies of all of the firms in the market. 7

MOVEMENT is caused merely by the change in price. It is important to distinguish between a change in supply (meaning a SHIFT) of the supply curve and MOVEMENT along the supply curve. SHIFT is caused by one of five factors or determinants other than price. MOVEMENT is caused merely by the change in price. 8

There are 5 Determinants (SHIFTERS) of Supply Change in Technology-Ex: Better v Worse Prices/Availability of Inputs (resources)-Ex: Increase or Decrease Cost of Mach Change in price of Related Goods or Services-Ex: Subs and Complements Change in Expectations of Future Profits-Ex: Big Trucks & Little Cars Change in number of Sellers Ex: Additional & Subtraction of Producers REFER TO THESE AS T.I.R.E.S. 9 9

Although not made part of T. I. R. E. S Although not made part of T.I.R.E.S. there is one additional factor that can SHIFT the Supply Curve and that is: When the government increases/decreases taxes or decides to subsidize a good or service.

GRAPHING SUPPLY Supply Schedule Price of Cereal Supply $5 50 $4 40 $3 For Example: What if new companies start making Cereal Because they see the Profit Potential? (new producer) Price of Cereal Supply $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o 10 20 30 40 50 60 70 80 Q Quantity of Cereal 11

Prices didn’t change but there is MORE cereal produced Change in Supply Supply Schedule Price of Cereal Supply S2 $5 4 3 2 1 Price Quantity Supplied $5 70 $4 60 $3 50 $2 40 $1 10 30 Increase in Supply Prices didn’t change but there is MORE cereal produced o 10 20 30 40 50 60 70 80 Q Quantity of Cereal 12

Change in Supply Or, What if a Drought Crops used to make cereal? Supply Schedule Or, What if a Drought Comes and Destroys the Corn and Wheat Crops used to make cereal? (increased cost of inputs) Price of Cereal Supply $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o 10 20 30 40 50 60 70 80 Q Quantity of Cereal 13

Prices didn’t change but there is LESS cereal produced Change in Supply Supply Schedule Price of Cereal Supply S2 $5 4 3 2 1 Price Quantity Supplied $5 30 $4 20 $3 10 $2 1 $1 10 0 Decrease in Supply Prices didn’t change but there is LESS cereal produced o 10 20 30 40 50 60 70 80 Q Quantity of Cereal 14

Supply Practice First, identify the determinant (shifter) then decide if supply will increase or decrease Shifter Increase or Decrease Left or Right 1 2 3 4 5 6 15

Sale of Hamburger Meat by Producer Company Lets Try Some Examples Which determinant (SHIFTER)? Increase or decrease of Supply? Which direction will curve shift? Sale of Hamburger Meat by Producer Company Mad cow disease kills 20% of cows Price of burgers increase 30% Restaurants sell both burgers and tacos. Demand increases for tacos 500% New technology cuts production time in half 5. Minimum wage increases to $10 6. Government increases tax on hamburgers 16 16

Quiz 10-Shifts in Supply First, identify the determinant (shifter) then decide if supply will increase or decrease Shifter Increase or Decrease Left or Right 1 Input Decrease Left 2 Law of Supply Movement Along Curve 3 Related Good 4 Technology Increase Right 5 6 Tax 17 17