Discussion: Supply

SUPPLY Quantity supplied the amount of a good that sellers are willing to sell at a given price. Law of Supply The law of supply states:, the quantity supplied of a good rises when the price of the good rises.

The Supply Curve: The Relationship between Price and Quantity Supplied Supply Schedule The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.

Ben’s Supply Schedule

The Supply Curve: The Relationship between Price and Quantity Supplied Supply Curve The supply curve graphs the relationship between the price of a good and the quantity supplied.

Ben’s Supply Schedule and Supply Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones $ An increase in price increases quantity of cones supplied.

Supply Curve Change in Quantity Supplied Movement along the supply curve. Caused by a change that alters the quantity supplied at each price.

1 5 Price of Ice- Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C $3.00 A rise in the price of ice cream cones results in a movement along the supply curve. Change in Quantity Supplied

Supply Try to graph this supply chart (snow shovels handout)

Shifts in the Supply Curve Shift in Supply A shift in the supply curve, either to the left or right. Caused by a change in a determinant other than price.

Shifts in the Supply Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in supply Decrease in supply Supply curve,S 3 curve, Supply S 1 curve,S 2

What is Supply? Supply the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.

The Law of Supply The law of supply as the price of a good increases, the quantity supplied of the good increases, and as the price of the good decreases, the quantity supplied of the good decreases. If P then Q s (Where P = price and Q s = Quantity supplied) When price goes up—the quantity supplied goes up When price goes down—the quantity supplied goes down

The Law of Supply cont. Direct Relationship Price & Quantity supplied move in the same direction. As one factor rises, the other rises, too. Price As price increases… Supply Quantity supplied increases Price As price falls… Supply Quantity supplied falls

The Law of Supply in Numbers & Pictures Supply Schedule A numerical chart that illustrates the law of supply $.501,000 Price per slice of pizzaSlices supplied per day Market Supply Schedule $1.001,500 $1.502,000 $2.002,500 $2.503,000 $3.003,500

The Law of Supply in Numbers & Pictures Supply Curve Market Supply Curve Price (in dollars) Output (slices per day) Supply A graph that shows the amount of a good that sellers are willing & able to sell at various prices.

The Law of Supply in Numbers & Pictures Vertical Supply Curve Sometimes the quantity of a good cannot change regardless of price. EX: Seats at a sporting event tonight—you can’t make more seats in the arena by tonight. Number of sporting event seats Price in Dollars 500 $50 $40 $30 $20 $10 $0 Supply curve when there is no time to produce more Supply curve of seats for tonight’s sporting event

When Supply Changes, the Curve Shifts Supply Changes Supply can go up & down As supply increases, the curve shifts to the right (S1 to S2) As supply decreases, the curve shifts to the left (S1 to S3) Quantity supplied of computers Price in Dollars $1000 $0 Original Supply curve S1 S3 S2

Factors that Cause the Supply Curve to Shift Prices of Resources When resource prices fall, sellers are willing and able to produce more of the good & offer it for sale. Ex: Labor, natural resources, etc.

Factors that Cause the Supply Curve to Shift Technology Is the body of skills & knowledge concerning the use of resources in production An advancement in technology is the ability to produce more output w/a fixed amount of resources Can help lower the per-unit cost, which is the average cost of producing the good

Factors that Cause the Supply Curve to Shift Taxes Taxes on production can increase the per- unit costs of producing a good. Taxes cause the supply curve to shift to the left! As supply decreases, the curve shifts to the left (S1 to S3) Quantity supplied of computers Price in Dollars $1000 $0 Original Supply curve S1 S3

Factors that Cause the Supply Curve to Shift Subsidies Subsidies are financial payments made by gov’t for certain actions. Ex: the gov’t may pay $2 for every bushel of corn a farmer produces to encourage farmers to make corn instead of tobacco. Subsidies increase production. The curve shifts to the right (S1 to S2) Quantity supplied of computers Price in Dollars $1000 $0 Original Supply curve S1 S2

Factors that Cause the Supply Curve to Shift Quotas Quotas are restrictions on the number of foreign- produced goods or imports that can enter a country. As supply decreases, the curve shifts to the left (S1 to S3) Quantity supplied of computers Price in Dollars $1000 $0 Original Supply curve S1 S3

Factors that Cause the Supply Curve to Shift Number of Sellers The more sellers begin producing a good, supply increases! The curve shifts to the right (S1 to S2) Quantity supplied of computers Price in Dollars $1000 $0 Original Supply curve S1 S2

Factors that Cause the Supply Curve to Shift Other Factors Expectations of future price Can cause sellers to either increase or decrease the current supply (ex: homes) Weather can affect supply Can change supply of wheat/corn

Factors that Cause Change in Quantity Supplied PRICE Price is the only factor that will change the quantity supplied of a good.

Determinants of Supply Can cause supply curve to shift to the left or right R esource Costs O ther goods’ prices T axes/subsidies T echnology E xpectations of producers N umber of sellers

Elasticity of Supply Elasticity Elastic = the Quantity supplied changes by a larger percentage than Price. Example: Price rises 10% & Quantity supply rises by 15% Elasticity = Percentage change in quantity supplied Percentage change in price

Elasticity of Supply Elasticity Inelastic = the Quantity supplied changes by a smaller percentage than Price. Example: Price rises 10% & Quantity supply rises by 5% Elasticity = Percentage change in quantity supplied Percentage change in price

Elasticity of Supply Elasticity Unit-elastic = the Quantity supplied changes by the same percentage as Price. Example: Price rises 10% & Quantity supply rises by 10% Elasticity = Percentage change in quantity supplied Percentage change in price

Review 1. What affect does a rise in the cost of raw materials have on the cost of a good? (a) A rise in the cost of raw materials lowers the overall cost of production. (b) The good becomes cheaper to produce. (c) The good becomes more expensive to produce. (d) This does not have any affect on the eventual price of a good. 2. When government actions cause the supply of a good to increase, what happens to the supply curve for that good? (a) It shifts to the left. (b) It shifts to the right. (c) It reverses direction. (d) The supply curve is unaffected.

Review 1. What affect does a rise in the cost of raw materials have on the cost of a good? (a) A rise in the cost of raw materials lowers the overall cost of production. (b) The good becomes cheaper to produce. (c) The good becomes more expensive to produce. (d) This does not have any affect on the eventual price of a good. 2. When government actions cause the supply of a good to increase, what happens to the supply curve for that good? (a) It shifts to the left. (b) It shifts to the right. (c) It reverses direction. (d) The supply curve is unaffected.

Review—True or False 1. The law of supply states that as the price goes up, the quantity supplied decreases. 2. Quantity supplied is the number of units of a good produced and offered for sale at a specific price. 3. A supply schedule is a numeric chart that illustrates the law of supply. 4. A supply curve is a graphic representation of the law of supply. 5. A vertical supply curve shows that supply is limited.

Review—True or False 1. The law of supply states that as the price goes up, the quantity supplied decreases. FALSE 2. Quantity supplied is the number of units of a good produced and offered for sale at a specific price. TRUE 3. A supply schedule is a numeric chart that illustrates the law of supply. TRUE 4. A supply curve is a graphic representation of the law of supply. TRUE 5. A vertical supply curve shows that supply is limited. TRUE

Review—True or False 1. Supply has decreased when the curve shifts to the left. 2. Resource prices affect the supply curve. 3. Advancement in technology will cause the supply curve to shift to the right. 4. Subsidies have the same effect on the supply curve as taxes. 5. Quotas are restrictions on the number of units of a foreign good that can enter the country.

Review—True or False 1. Supply has decreased when the curve shifts to the left. TRUE 2. Resource prices affect the supply curve. TRUE 3. Advancement in technology will cause the supply curve to shift to the right. TRUE 4. Subsidies have the same effect on the supply curve as taxes. FALSE 5. Quotas are restrictions on the number of units of a foreign good that can enter the country. TRUE

Homework Determinants of Supply handout Due Thursday 1/24

Wrap up On your ticket, please write down 1 thing that made sense to you, and 1 thing about supply that did not make sense