With demand, you were the consumer! With supply, you are the producer… the entrepreneur… the business owner… You are trying to make a PROFIT!!!

Supply! How much should a producer supply on the shelves of a store? 21-3

In the last chapter, we learned that demand sets prices!  For example, if a popular pair of shoes has just gone on the market…  and demand is high…  Producers will set the price HIGH! Why?  Because the producer wants to make a lot of $$$ off your demand!

#1 Supply is...  Various quantities of a good/service producers are willing to sell at various prices  Look at p.582 $20 $40

#2  Supply is the opposite of demand.  When we learned about demand… buyers/consumers demanded different quantities of a good depending on the price that sellers ask. #3   With supply, suppliers/producers offer different quantities of a product depending on the price that buyers are willing to pay. (Think about that carefully! Read these 2 answers again slowly.)

#4 Remember with demand:  as prices rise, demand falls.  as prices fall, demand also rises.

#5  With supply, as price rises for a good, the quantity supplied also rises. (In other words, if people are willing to pay a high price, put a lot of goods on the shelf. It means more $$$ for the producer!)  Look at supply schedule & supply curve on p  As price falls for a good, the quantity supplied also falls. (This is b/c no one is buying the few that are on the shelf, so the producer puts them on sale.)

#6 The Law of Supply This principle states that suppliers will offer more for sale at a higher price and less at a lower price.

#6 cont’d The higher the price of the good, the greater the incentive for a producer to make more (of the product). Add this to your answer: In other words, the producer will expect a higher profit b/c of the higher price.

Therefore, the incentive that motivates producers is Profit!

#7a, 7b, 7c Individual Supply for one video game company called Software House  If Software House has 100 video games on the shelf to be sold, they will sell them for $50.  If Software House has 70 video games on the shelf to be sold, they will sell them for $30.  If Software House has 1 video game on the shelf to be sold, they will sell it for $5.

#7e Price x Quantity = Total Revenue PriceQuantityRevenue $50100$5,000 $4090$3,600 $3070$2,100 $2030$600 $1010$100 $51$5 From the chart, how much $ would you like to earn? To make the most profit, your company would have 100 games on the shelf & sale them for $50! $5000 in total revenue!

#8 In the supply curve,  Quantity represents  the amount of a good/service a business/producer is willing to supply/produce. Note: Don’t confuse this w/ the demand. With demand, quantity represented how much YOU were willing to buy. This is supply! Here, quantity is how much you will sell.

#9 The supply curve slopes  UP!  Remember, the demand curves slopes down.

#10  This reflects that suppliers are willing to offer more products at a higher price and fewer products at a lower price (because they have gone on sale & there aren’t many left).

#11  They won’t be able to pay their bills!  They won’t be able to make a profit in order to make $$$$$!

#12 Profit is defined as...  The amount of money a business receives above its (fixed & variable) costs!

#13 Producers can use their profit in 3 ways: a.increase the wages of its workers! (investing in human capital) b. purchase other things the company needs (office equipment, scanners) c. keep the profit for themselves & spend it.

#14 Market Supply is defined as...  Combining all the supply schedules of all businesses that provide the same type of good or service  examples: all sporting goods stores all car washes all car washes all video game stores all video game stores all music stores all music stores

#15 Market Supply for all video game companies (Sony, Nintendo, XBox) PriceQuantityRevenue $50275$13,750 $40225$9,000 $30180$5,400 $20105$2,100 $1055$550 $530$150

#16 The supply curve slopes up b/c  Producers are willing to  sell more games at higher prices  Why? To make a profit!

#17 The most significant influence of on quantity supplied is Price!

Changes in Supply  #18 For a change in supply to take place, producers must decide to offer a different quantity of output at each possible price in the market.  #19 When the supply goes down, the supply curve shifts left. When supply goes up, it shifts to the right.

We will now skip to #24 to fill in the big chart!  Follow the instructions!

#24 The factors that affect supply & determine how many goods are sold (All of these need to be listed in the far left hand box for your chart in # 24.)  Changes in the cost of resources  Productivity  Technology  Changes in Govt. Policies  Changes in Taxes  Changes in Subsidies  Changes in Expectations  Changes in the # of Suppliers

Fill in the answers for #24. Factor Example of Increase in Supply Example of Decrease in Supply Changes in the cost of resources Productivity Technology Changes in Govt. Policies Changes in Taxes Changes in Subsidies Changes in Expectations Changes in the # of Suppliers In order to fill these boxes in, the next 8 slides will give you the information that needs to be copied. If you think your handwriting won’t fit, you may use a separate sheet of paper. Go ahead & click to the next slide.

Changes in the cost of resources ( the supplies you need to make your product) Increase in Supply  You own a cake company.  On a regular week, you make 100 cakes.  The price of eggs, milk, and flour all go on sale & are 50% off.  You can now produce 120 cakes. *******************************  The cost of your resources went DOWN, so your supply of cakes went UP = increase in supply! Decrease in Supply  The price of eggs, milk, and flour all go up.  You can only produce 85 cakes instead of 100. ***********************************  The cost of your resources went up, so your supply of cakes went down = decrease in supply!

Productivity (making goods faster, more efficient) Increase in Supply  The Barbie doll company figures out they can get dolls made faster if its workers work in an assembly line!  Station 1: puts on arms  Station 2: puts on legs  Etc, Etc.  They can get 2x as many dolls completed.  Supply of Barbies increase! Decrease in Supply  The Barbie Doll company has each worker making an entire doll all by himself.  Some dolls are missing an eyeball. Some have no left arm. Those dolls have to be thrown out.  Decrease in Barbies!

Using Technology Increase in Supply  A grocery store has its cashiers use cash registers to check-out customers.  Grocery stores also use scanners.  Faster technology = can get customers through the line more quickly!  Therefore, more goods sold!  Supply of goods going out the door (sold) goes increases! Decrease in Supply  A grocery store has its cashiers checking out customers using a calculator (or worse, doing the math on w/ pencil & paper)  This is taking too long!  The check-out lines have 20 customers waiting & many are getting frustrated.  Several customers leave!!  Goods aren’t being sold.  Supply of goods going out the door (not sold) decreases!

Changes in Govt. Policies Increase in Supply  Changes in govt. policies very, very rarely leads to an increase in supply. Decrease in Supply  20 people work at McD.  The govt. raises minimum wage to $10/hr.  This adds to McD’s variable costs.  McD has to fire 10 workers b/c they can’t pay everyone.  Those 10 people who are left working can’t produce as many hamburgers.  Decrease in supply of hamburgers!

Changes in Taxes Increase in Supply  The govt. lowers the taxes on a business’ equipment.  Its variable costs go down.  The business can produce more goods b/c of low taxes.  Increase in supply! Decrease in Supply  The govt. raises the taxes on a business’ equipment.  Its variable costs go up.  The business produces fewer goods b/c of high taxes.  Decrease in supply!

Changes in Subsidies (when the govt. pays a portion of the costs for a business) Increase in Supply  It costs a farmer $500 to ship its milk out of state.  The govt. subsidizes the cost & agrees to pay $300 of it.  The farmer can ship even more milk b/c the govt. is going to help pay for it.  It’s like free money as long as the business it doing right.  Increase in the supply of your product to be sold! More $$ in the entrepreneur’s pocket. Decrease in Supply  Govt. subsidies do not cause a decrease in supply unless the govt. has to take the subsidy away.

Changes in Expectations Increase in Supply  Businesses expect that consumer demand will be high in the future.  Therefore, business will prepare to make lots of their product.  Example:  Preparing to sell iPads  Increase in supply of iPads Decrease in Supply  Businesses expect that consumer demand will be low in the future.  So, they will make less of their product.  Example:  Not making as many desktop computers  Decrease in supply of desktops

Changes in the # of Suppliers Increase in Supply  More suppliers selling goods in the market:  Nike  Reebok  Adidas  Nu Balance  Whoa! That’s a lot of shoes!  Supply of shoes increase! Decrease in Supply  When suppliers go out of business or leave the market.  Supply of shoes decrease!

Now, back to # Define supply elasticity. the measure of how the quantity supplied of a g/s changes in response to the price the measure of how the quantity supplied of a g/s changes in response to the price 21. A product is said to be supply elastic if quantity changes a lot when prices go up or down. Example: selling kites, bikes, cars Elastic Supply & Inelastic Supply

22. How is oil an example of supply inelastic? b/c when oil prices go up, oil companies can’t just quickly dig a new well, build a pipeline, build an oil refinery, and make the gas. Inelastic supply of goods is not that easy, not flexible. It takes a while to get those goods made. b/c when oil prices go up, oil companies can’t just quickly dig a new well, build a pipeline, build an oil refinery, and make the gas. Inelastic supply of goods is not that easy, not flexible. It takes a while to get those goods made. 23. A product is said to be supply inelastic if quantity changes very little.  Example: oil