Supply

What is Supply? Supply is how much a firm is willing to sell at every given price, ceteris paribus Thus, if all else remains the same and the price of a good goes up, what would you expect the response of a firm to be? –To produce more, since prices are going up, so will profits

Law of Supply Law of Supply - the price of a product (or service) is directly related to the quantity supplied, ceteris paribus. While demand typically refers to consumers, supply typically refers to firms.

Supply Schedules and Curves Supply Schedule/Curve - a table or diagram showing the relationship between the price of a good and the quantity supplied, ceteris paribus.

Supply Schedule

Supply Curve Q s per month A B C P($) S

Theory of Market Entry When the price/supply of a product rises, that product stands out as a good opportunity to make money. Examples –Food: Subway Franchises –Media: Type of Music, TV Shows, Movies

Change in Supply Factors That Cause a Change in Supply Input Costs

Any change in the cost of an input to produce a good will affect supply –Raw materials, machinery, labor

Change in Supply Factors That Cause a Change in Supply Input Costs Technology

Technology Improvement in technology lowers costs Lower cost of production increases Supply Worsening of technology increases costs Higher cost of production decreases Supply

Change in Supply Factors That Cause a Change in Supply Input Costs Technology Expectations of Future Price

Expectations of Future Prices Firms expect price of their goods to increase or decrease in the future. Increase in price Supply increases today Firm would prefer to sell today when price is higher Decrease in price Supply decreases today Firm would prefer to wait until the good can be sold for a higher price

Change in Supply Factors That Cause a Change in Supply Input Costs Technology Expectations of Future Price Number of Suppliers

The number of sellers in the market determines the amount of quantity supplied at every price

Change in Supply Factors That Cause a Change in Supply Input Costs Technology Expectations of Future Price Number of Suppliers Government Influence

Government Influence on Supply Subsidies: Government payment that supports a business or market. Taxes: Government reduces supply of a product by putting a excise tax on it. Regulation: Government intervention in a market that affects price, quantity or quality of a good