S2 m6 Supply

Supply The amount of goods a services a seller is willing to sell at every price

The Supply Schedule & the Supply Curve The quantity supplied is the amount of a good or service people are willing to sell at a specific price. 11.6 11.5 11.2 10.7 10.0 9.1 8.0 Price of cotton (per pound) Quantity of cotton supplied (billions of pounds) 1.75 1.50 1.25 1.00 0.75 0.50 $2.00 Supply Schedule for Cotton A supply schedule shows how much of a good or service producers will supply at different prices.

The Supply Schedule & the Supply Curve The supply curve is the graphical representation of the supply schedule. It also shows how much of a good or service producers are willing to supply at different prices.

The Supply Schedule & the Supply Curve The law of supply states that, all other things being equal, the price and quantity supplied of a good or service are positively related. Price of cotton (per pound) Supply curve, S $2.00 1.75 As price rises, the quantity supplied rises. 1.50 1.25 1.00 0.75 0.50 7 9 11 13 15 17 Quantity of cotton (billions of pounds)

Shifts of the Supply Curve These two supply schedules show quantity supplied before and after the adoption of a new technology that boosted productivity. Adopting the technology enables suppliers to offer a greater quantity of cotton at any given price.

Shifts of the Supply Curve A shift of the supply curve is a change in the quantity supplied at any given price. It is represented by the movement of the original supply curve to a new position.

Movement Along the Supply Curve A movement along the supply curve is a change in the quantity supplied of a good that is the result of a change in price. Price of cotton (per pound) A movement along the supply curve… S1 S2 $2.00 1.75 1.50 B …is not the same as a shift of the supply curve. 1.25 A 1.00 0.75 As cotton’s price rises from $1.00 to $1.50… 0.50 7 10 11.2 15 17 Quantity of cotton (billions of pounds) … quantity supplied rises from 10 to 11.2.

Understanding Shifts of the Supply Curve A decrease in supply means a leftward shift of the supply curve. An increase in supply means a rightward shift of the supply curve. Price S3 S1 S2 Increase in supply At any given price, there’s a decrease in the quantity supplied. At any given price, there’s an increase in the quantity supplied. Decrease in supply Quantity

Understanding Shifts of the Supply Curve Any change in these five factors can shift the supply curve: Table 6.1 (p. 64) details how each type of change can shift the supply curve. 1) Input prices 2) Prices of Related goods or services 3) Producer Expectations I-RENT is a mnemonic device that can help you remember these factors. 4) Number of producers 5) Technology

Understanding Shifts of the Supply Curve A change in the price of an input (a good or service used to produce another good or service) can shift the supply curve. Sugar and cream are inputs for ice cream. If the price of sugar or cream rises, the ice cream supply curve shifts left. Oil is one input for airline fuel. If the price of oil goes down, the supply curve for flights shifts right.

If the price of steal increases what happens to supply Supply of buses would decrease

Understanding Shifts of the Supply Curve A change in the price of a related good or service shift the supply curve differently depending on whether the goods are substitutes or complements in production. If the price of heating oil rises, refiners supply less gasoline, shifting the supply curve for gasoline to the left. Because they are substitute goods

Understanding Shifts of the Supply Curve If natural gas is a by-product of crude oil drilling, and the price of natural gas goes up, suppliers may supply more of both products. Thus they are complements in production.

Understanding Shifts of the Supply Curve Changes in expectations of how the price of a good or service will change in the future can shift the supply curve. Expecting gas prices to peak in the summer, producers may lower the supply of gas in the spring.

Understanding Shifts of the Supply Curve Changes in the number of producers of a good or service can shift the supply curve. If many orange producers go out of business, the supply curve for oranges will shift to the left.

Understanding Shifts of the Supply Curve Changes in the available technology used to produce a good or service can shift the supply curve.

Individual Versus Market Supply Curves The market supply curve is the horizontal sum of the individual supply curves of all producers in that market.

Summary and Review 1) What does the supply schedule show? The quantity supplied at each price. 2) What is the graphical representation of the supply schedule? The supply curve Option 2 for teasing the jeans narrative: cut the question & answer about jeans on the previous slide, and give it its own slide here. less clutter, but uses 2 slides. 3) Supply curves usually slope in which direction—and why? Upward—due to the law of supply.

Summary and Review 4) What does the law of supply state? Producers tend to supply more of a good or service as its price increases. Option 2 for teasing the jeans narrative: cut the question & answer about jeans on the previous slide, and give it its own slide here. less clutter, but uses 2 slides. 5) What is the cause and result of a movement along the supply curve? A change in price causes a change in quantity demanded.

Summary and Review 6) What causes a shift of the supply curve? A change in supply at any given price. 7) If supply increases, which way does the supply curve shift? It shifts to the right. Option 2 for teasing the jeans narrative: cut the question & answer about jeans on the previous slide, and give it its own slide here. less clutter, but uses 2 slides. 8) If supply decreases, which way does the supply curve shift? It shifts to the left.

Summary and Review 9) Changes in what five factors can shift the supply curve? 1) Input prices Remember I-RENT. 2) Prices of Related goods or services 3) Producer Expectations Option 2 for teasing the jeans narrative: cut the question & answer about jeans on the previous slide, and give it its own slide here. less clutter, but uses 2 slides. 4) Number of producers 5) Technology

Summary and Review 10) How are the market supply curve and the individual supply curves of all the consumers in that market related? The market supply curve is the horizontal sum of the individual supply curves of all consumers in the market. Option 2 for teasing the jeans narrative: cut the question & answer about jeans on the previous slide, and give it its own slide here. less clutter, but uses 2 slides.

Walkthrough: Free-Response Question 1 1. Tesla Motors makes sports cars powered by lithium batteries. a Draw a correctly labeled graph showing a hypothetical supply curve for Tesla sports cars. b. On the same graph, show the effect of a major new discovery of lithium that lowers the price of lithium. c. Suppose Tesla Motors expects to be able to sell its cars for a higher price next month. Explain the effect that will have on the supply of Tesla cars this month. (4 points) 1 point: Graph with “Price” or “P” on the vertical axis and “Quantity” or “Q” on the horizontal axis. 1 point: Correct explanation that the expectation of higher prices next month would lead to a decrease in the supply of Tesla cars this month because the company will want to sell more of its cars when the price is higher. 1 point: A positively sloped curve labeled “Supply” or “S”. Option 2 for teasing the jeans narrative: cut the question & answer about jeans on the previous slide, and give it its own slide here. less clutter, but uses 2 slides. 1 point: A second supply curve shown to the right of the original supply curve with a label such as S2, indicating that it is the new supply curve .