Elasticity of Supply

Changes in the price offered by the market will affect the amount of goods produced by businesses Changes in the price offered by the market will affect the amount of goods produced by businesses The degree to which a product’s supply is impacted by price is called the elasticity of supply The degree to which a product’s supply is impacted by price is called the elasticity of supply

If the price that consumers are offering for a product goes up- the producers would be foolish not to make more If the price that consumers are offering for a product goes up- the producers would be foolish not to make more Big question is Can They Make More? Ease of Production Big question is Can They Make More? Ease of Production

A factory makes tie dyed T shirts A factory makes tie dyed T shirts They respond to higher prices by a massive increase in production They respond to higher prices by a massive increase in production The shirts are cheap and easy to make The shirts are cheap and easy to make They have an elastic supply They have an elastic supply

On the other hand- let’s look at the Boeing 777 On the other hand- let’s look at the Boeing 777 A third world dictator wishes to pay double the sticker price to build an airline for his country A third world dictator wishes to pay double the sticker price to build an airline for his country

He is angered to learn that Boeing turns down his offer to buy twenty planes at $300 million each- especially since they only cost $150 million to begin with He is angered to learn that Boeing turns down his offer to buy twenty planes at $300 million each- especially since they only cost $150 million to begin with

Remember ease of production? Jets are not something you whip up during an all nighter Remember ease of production? Jets are not something you whip up during an all nighter They are massive pieces of intricate machinery and technology They are massive pieces of intricate machinery and technology

No matter what you offer- Boeing simply cannot make an abundance of the planes No matter what you offer- Boeing simply cannot make an abundance of the planes Quantity cannot stretch much- economists refer to a product like jets as having an inelastic supply Quantity cannot stretch much- economists refer to a product like jets as having an inelastic supply

What are some other products that are inelastic in supply? What are some other products that are inelastic in supply?

Inelastic Powerplant/lines Powerplant/lines House House Shopping malls Shopping malls

Supply Curves Move When Supply Increases or Decreases Even if price remains constant- other factors many force supply to increase or decrease Even if price remains constant- other factors many force supply to increase or decrease Businesses are often faced with many obstacles in getting products to the marketplace Businesses are often faced with many obstacles in getting products to the marketplace

The factors are called determinants of supply The factors are called determinants of supply Technological improvement Technological improvement Resource prices Resource prices Taxes and subsidies Taxes and subsidies Competition Competition

Technological Improvement If Ford buys new robots to work in its factories, productivity will increase If Ford buys new robots to work in its factories, productivity will increase More Fords will hit the marketplace even if prices have remained constant More Fords will hit the marketplace even if prices have remained constant

Resource Prices The price of resources or factors usually refers to anything needed to make a product or provide a service The price of resources or factors usually refers to anything needed to make a product or provide a service If a steel shortage causes production problems at Caterpillar- the amount of tractors the company will be able to make may decrease If a steel shortage causes production problems at Caterpillar- the amount of tractors the company will be able to make may decrease

Taxes and subsidies Subsidy: monetary grant to a business to help ease production or develop a new product Subsidy: monetary grant to a business to help ease production or develop a new product Taxes add to production costs and will result in lower supplies at a given price Taxes add to production costs and will result in lower supplies at a given price If more money is coming in the form of subsidy, costs will decrease and result in higher supplies If more money is coming in the form of subsidy, costs will decrease and result in higher supplies

Competition When in-line skates started to become popular, there were only a few companies in the field When in-line skates started to become popular, there were only a few companies in the field As the popularity became evident to business people, more producers entered the market As the popularity became evident to business people, more producers entered the market Prices remained competitive, but the supplies and choices of in line skates swelled Prices remained competitive, but the supplies and choices of in line skates swelled

The product is Boeing 777s. For each of the four determinants of supply, think of a situation that would increase the supply of planes The product is Boeing 777s. For each of the four determinants of supply, think of a situation that would increase the supply of planes

Supply and Demand Meet!! The price system is the means by which the price of a good or service is determined in a pure market economy The price system is the means by which the price of a good or service is determined in a pure market economy When a business produces something, it hopes to find a customer, retrieve the money spent in productions, and make a profit When a business produces something, it hopes to find a customer, retrieve the money spent in productions, and make a profit

When a business approaches the marketplace- it posts a price that says to customers “If you want my product you will have to give me this much” When a business approaches the marketplace- it posts a price that says to customers “If you want my product you will have to give me this much”

Customers also approach the market with something to say Customers also approach the market with something to say If they choose to buy, they confirm to the business that they consider the price fair If they choose to buy, they confirm to the business that they consider the price fair If they pass, the producer is being told that the price is not acceptable If they pass, the producer is being told that the price is not acceptable

The business will respond by lowering prices until people start to buy The business will respond by lowering prices until people start to buy Price is determined graphically where the supply and demand curves meet Price is determined graphically where the supply and demand curves meet

This point is often called equilibrium This point is often called equilibrium It occurs when the supply for a product matches the demand for a product It occurs when the supply for a product matches the demand for a product

What is the current equilibrium price of gasoline? What is the current equilibrium price of gasoline?