Fall 2013 Supply

Guiding Questions What is supply? What is a supply schedule? What is a supply curve and what does it look like? What factors influence supply?

What is Supply? You know that demand describes buyer behavior. Review – what is the definition for demand? The quantities of a good or service people will buy at all possible prices at a particular time.

What then is supply? Supply describes seller behavior. What do you think the definition will be??? Supply: The quantities of a particular good or service producers are willing and able to supply at all possible prices at a particular time. Quantity supplied: The number people will supply at ONE price at ONE given time

Remember the Law of Demand?

We also have a law of supply. When thinking about the law of supply, what is the primary incentive producers have to produce? PROFIT!!!

Law of Supply So what do you think the law of supply will say? The Law of Supply – Producers supply more of a good at a higher prices than they do at lower prices. The higher the price, the higher the quantity supplied

$.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 Supply Schedules A supply schedule is a chart that lists how much of a good all suppliers will offer at different prices.

Market Supply Curve Price (in dollars) Output (slices per day) Supply Supply Curves A market supply curve is a graph of the quantity supplied of a good by all suppliers at different prices.

What factors affect supply…? Remember the factors that affect the determinants of demand…? If price is the ONLY thing that changes, then that is a MOVEMENT along the demand curve (to a new point – it’s a change in quantity demanded)) If something OTHER than price changes, then that is a SHIFT of the entire demand curve It’s the exact same thing for supply! If price is the ONLY thing that changes, then that is a MOVEMENT along the supply curve (to a new point – it’s a change in quantity supplied) If something OTHER than price changes, then that is a SHIFT of the entire supply curve (determinants of supply)

Determinants of Supply Non-price factors that affect the supply curve… There are 6!

Cost of Resources Resource prices affect the cost of production. As resource prices increase, cost of production increases and producers are less willing to make goods at higher costs unless they receive higher prices. For example, when the cost of beef increases, producers will want to sell fewer hamburgers… even though the cost of hamburgers didn’t change LESS supply means the curve shifts to the LEFT

Technology Changes Improved technology usually means a lower cost of production. Decreases in cost mean more production and increased supply. For example, when car companies invented robots to build cars, the supply for cars went up… even though the cost of cars didn’t change MORE supply means the supply curve moves to the RIGHT

Number of Producers (Competition) If more producers enter a market, the supply will increase, shifting the supply curve to the right. For example, Blackberries were the first smartphones. But as Apple, Samsung, HTC… started producing cell phones the supply for smartphones increased. MORE supply means the supply curve moves to the RIGHT

Prices of Related Goods When possible, businesses will choose to supply the highest- priced good. This means that the change in one product’s price affects the supply for the product’s related goods. For example, farmers can choose to produce corn, soybeans, wheat, hay… they will choose to farm the crop that will give them the highest price, which decreases the supply of other products. LESS supply shifts the curve to the LEFT

Producer Expectations Changes in producer’s future expectations can cause a change in supply. Ex: businesses expect more people to want sunscreen during the summer… so they increase supply. MORE supply means the curve shifts to the RIGHT.

Government Tools Taxes – when the government increases or decreases taxes that changes the cost of production… Higher taxes LOWER supply which shifts the curve to the LEFT Lower taxes INCREASE supply which shifts the curve to the RIGHT Subsidies – the government pays businesses money to support them Subsidies increase sellers’ profits. Higher profits  higher supply  curve moves to the RIGHT Regulations – rules/laws businesses have to follow. They decrease sellers’ profits. Lower profits  lower supply  curve moves to the LEFT