SUPPLY An Introduction

What Can We See In Supply Graphs? Reminder: Fully Label Your Graph Title Price Quantity Supply Curve What do you notice in the supply graphs? Resource Market Households sUPply curve Price Quantity

The Law (Principle) of Supply As price rises, the quantity supplied rises As price falls, the quantity supplied falls To a supplier, PRICE=REVENUE or INCOME Which serves as an incentive to produce & sell products or resources The higher the price, the greater the incentive

Movement Along a Supply Curve Market Supply Graph Supply P1 As the price declines from P1 to P, the quantity Supplied decreases form Q1 to Q P Q Q1 Remember: A change in PRICE = A change in QUANTITY SUPPLIED

Shift in Supply Q Q1 S Market Supply Graph S1 Increase in Supply from S to S1 shows that at the same price (P), the quantity increased from Q to Q1 P A Change in a NON-PRICE Factor = A Change in SUPPLY thus, Movement of Entire Curve Q Q1

Supply Shifters A shift to the right of a supply curve signifies an INCREASE in the supply A shift to the left of a supply curve signifies a DECREASE in the supply S Decrease P Increase Q2 Q Q1

Determinants of Supply Factors that shift supply are Resource prices Other related goods prices (# producer substitutes) Technology Taxes and subsidies (gov action) Exceptional weather Number of sellers in the market

Supply Circumstances The supply of cars when open-trade agreements bring in new producers. Shift right; increase in producers The supply of coffee when freezing temperatures hit the major coffee-producing regions of Brazil and Costa Rica. Shift left; natural disaster decreases inputs The supply of lumber when a new computer-assisted saw reduces the cost of lumber production Shift right; new technology decreases production costs The supply of gasoline today if there is expected shortage and higher prices likely to occur next week. Shift left; sellers want higher future prices, so they will decrease their supply today

Continued practice Supply of chocolate if a tax is imposed Supply will shift left, a reduction in supply Supply of wheat if subsidy is provided Supply will shift right, increase

Quick Check The law of supply states There is a positive relationship between price and quantity supplied The graph of a supply curve is a downward slopping line People usually supply fewer goods and services when their prices rise People’s behavior in the marketplace is unpredictable

Quick Check When the price of an item changes, producers will usually: Look at how the price change influences the relative value of their alternatives Disregard a small change in price Assume the item is on sale & produce more None of the above

Quick Check Which item will not change the supply for a good or service: Expectations Number of sellers Price Change in technology

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