Economics Chapter 5.1 : The Law of Supply

Economics is the study of choices. Just as Tom Hanks had to make economic choices (build a house or a boat), and consumers make choices (which products they are willing and able to demand), so to business must decide how much of a product to supply

Agenda for Today 5.1 Law of Supply Slide Show Homework – Complete Worksheet Chapter 5, Lesson 1

Let’s Review

What is Supply? Supply – Ability and willingness of a producer to provide things for sale Supply is not the physical amount ready for sale It is the point at which a seller is willing and able to supply Law of Supply – belief that as the price of a good rises, the quantity supplied will rise The more $ Mr. Krabb can get, the more he is willing to “supply” Would Mr. Krabbs “supply” Krabby Patties with sea cheese if it cost him $1.75 to produce it? Explain. What if the price rose to $2.00 for a Krabby Patty with sea cheese?

What is a Supply Schedule? Supply Schedule Way to show the law of supply using a chart Use the Supply Schedule to answer the following questions – Suppose Mr. Krabb decides to sell ice cream cones. Why is he unwilling to supply cones at $.50?

What is the Supply Curve? Supply Curve – Illustrates the behavior of the seller – Shows quantity the seller is willing and able to provide at each possible price How many pizza’s would Mr. Krabb be willing to supply at $1? How many at $4?

How much will a change in price affect supply? Elasticity of SupplySupply – How changes in price affect the quantity of supply Elastic Supply – When a change in price has a big effect on the quantity supplied American Flags after 9/11 – Patriotic Americans willing to pay more for flag – As price rose, supply rose

What is inelastic supply? Inelastic supply – When a change in price has very little effect on the quantity supplied There is a limited amount of land available IPhone – No matter the price, it takes time and skill to make a IPhone

What is zero elasticity of supply? Zero Elasticity of Supply A change in price has no increase in supply Usually found in rare, “one of a kind” products Example – Mona Lisa by Leonardo da Vinci – No matter how much someone is willing to pay, there will only ever be 1 Mona Lisa