SUPPLY What is it? The amount of goods or services for sale at a particular price. The amount of goods or services for sale at a particular price. Breakdown:

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SUPPLY AND DEMAND I: HOW MARKETS WORK

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Presentation transcript:

SUPPLY

What is it? The amount of goods or services for sale at a particular price. The amount of goods or services for sale at a particular price. Breakdown: The lower the price the less product…the higher the price the more goods and services offered. Breakdown: The lower the price the less product…the higher the price the more goods and services offered.

The LAW of Supply The quantity offered varies directly with the price offered. The quantity offered varies directly with the price offered. 1. Higher price allows for greater output 2. Less efficient producers will join the game because the increased price will allow them to produce The Law of Supply: As Price, the quantity Supplied.

Da Graphs There are Supply Schedules too. These Schedules can be graphed! Yahoo! The slope is upward and to the right!

Supply schedule for Ice cream cones Price per cone Price per cone $1.00 $1.00 $1.25 $1.25 $1.50 $1.50 $1.75 $1.75 $2.00 $2.00 Quant. Supplied

Elasticity of Supply Just like demand, supply is sensitive or insensitive to price changes. Just like demand, supply is sensitive or insensitive to price changes. Elastic = Change in price causes larger change in supply Elastic = Change in price causes larger change in supply Inelastic = Change in price causes smaller change in supply! Inelastic = Change in price causes smaller change in supply!

Market Price! You cant always get what you want. You cant always get what you want. The price at which goods or services may actually be bought or sold is the MARKET PRICE (Equilibrium price) The price at which goods or services may actually be bought or sold is the MARKET PRICE (Equilibrium price)

Remember: These situations take place in a PERFECT market economy: 1. All buyers work independently and are too small to influence markets alone. 1. All buyers work independently and are too small to influence markets alone. 2. Competing products are practically identical. 2. Competing products are practically identical. 3. All buyers have full knowledge of all price quotes. 3. All buyers have full knowledge of all price quotes. 4. Buyers and sellers can enter and leave the market at will. 4. Buyers and sellers can enter and leave the market at will.

$2.50…Thats it? The equilibrium/market price is the ONLY price. Cant afford it? You will leave the market. Wont sell for that cheap? You will leave the market. The market will drive you to equilibrium price even if you are willing to act at another price.