SUPPLY Chapter 5 b4Jn3Q

Supply   Supply is the desire and ability to produce and sell a product.   The Law of Supply – quantity supplied varies directly with its price P SPS

Supply Curve Pt. Price of DVDs Quantity Supplied A$3060 B$2550 C$2040 D$1530 E$1020 F$510 0 Quantity Price A B C D E 60 F

Change in Quantity Supplied   Change in Quantity Supplied (MOVER) is an increase or decrease in the amount supplied due to a CHANGE IN PRICE.   Stay on the same supply curve

Quantity Price A B C D E F Change in Quantity Supplied

Changes in Supply   Change in Supply (SHIFTER) is when selling price remains the same, but supply changes due to something other than price

Quantity Price Change in Supply A B C D E F A B C D E F

6 Factors for Change in Supply TECHNOLOGY LABOR PRODUCTIVITY INPUT COSTS # of PRODUCERSGOVT ACTION EXPECTATIONS ube.com/watch ?feature=endscr een&v=pt0rdKr hN1w&NR=1

1. Input Costs   Input costs are the price of the resources needed to produce a good or provide a service.   Cheaper costs = supply increase   Increased costs = supply decrease

Cost of production goes down Cost of production goes up

2. Technology   New machinery and innovations to production.   Better tech. enables companies to produce more goods.

Better technologyTechnology shutdown

3. Government Action   Government policies can either help or hurt costs of production.   Taxes, Regulations and…   Subsidies: payments that help to cover some costs, encourage companies to produce a certain good.   Examples   Tax on cigarettes, A subsidy for milk, The Clean Air Act

Subsidy for goodIncreased tax on good

4. Number of Producers   With more producers, more goods or serviced are produced, and vice versa   Examples:   Many car companies exist due to the success of Ford.   Increased competition drove out Pontiac and Saturn.

New company joins industry Company drops out of industry

5. Producer Expectations   If producers expect the price of their product to rise or fall in the future, that may affect their rate of production.

Producer expects price of good to rise Producer expects price of good to fall

6. Labor Productivity   Labor Productivity refers to the amount of goods and services that a person can produce at a given time.   Increased productivity means supply increase and vice versa. Examples: New training method Loss of workers

New training methodLoss of workers

Production Costs   FIXED EXPENSES are expenses that businesses must incur whether they are producing nothing, a little or a lot. INSURANCE RENT LICENSES, FEES

Production Costs   VARIABLE EXPENSES are expenses that vary as the level of PRODUCTION changes. FarmerAutomobile manufacturer Banana Republic Dairy Queen Variable costs SEEDS, FERTILIZER, WATER, WORKERS STEEL, WORKERS, MACHINES, TIRES, GLASS TEXTILES, WORKERS, ADVERTIS- ING ICE CREAM, CONES, WORKERS, SPRINKLES

Production Costs   Adding FIXED and VARIABLE gives a business their TOTAL COST.

Number of workers Total product Fixed costs ($) Variable costs ($) Total cost ($) Exercise: calculating total cost of

Elasticity of Supply   Elasticity of supply is how responsive producers are to price changes.   Elastic supply – quantity supplied will change greatly as price changes.   Inelastic supply – quantity supplied will change little as price changes.

Elastic Supply 0 Quantity Price Prices will not change much, but quantity supplied will change. A B C D E F 50

Inelastic Supply 0 Quantity Price A B C D E F Prices will change a lot, but quantity supplied will not change much.

Factor of Supply Elasticity   The only factor of elasticity for supply is the ease of changing production when the price of an item changes.   Elastic – if production isn’t complicated & resources are readily available   Inelastic – if production is complicated & resources are expensive or scarce Ex: supply of gas - inelastic Gas Prices Explained