E. Napp Understanding Supply In this lesson, students will identify characteristics of the Law of Supply. Students will be able to identify and/or define the following terms: Law of Supply Supply Curve Elasticity of Supply
E. Napp Look carefully at this graph. How does price influence supply?
E. Napp Law of Supply The Law of Supply is the tendency of suppliers to offer more of a good at higher prices. Sellers love high prices. The Law of Supply is the opposite of the Law of Demand.
E. Napp Look carefully at the curves. Do you notice that they move in different directions? Why?
E. Napp Why do suppliers love high prices?
E. Napp Why is the Law of Supply True? Supply increases as price rises because either existing firms will produce more to make greater profits… Or new firms will enter the market to take advantage of the high prices. Sellers love to make profits.
E. Napp It’s hard to find vinyl records anymore. Suppliers prefer selling Compact Discs. Suppliers go where the higher prices are.
E. Napp Suppliers don’t sell Disco anymore. There just isn’t any money in it.
E. Napp A Supply Curve A supply curve is a graphic representation showing the tendency of suppliers to supply more at higher prices. A supply curve will always rise left to right. Suppliers supply more at higher prices.
E. Napp Notice how the supply curve rises left to right.
E. Napp Supply moves in the direction of price.
E. Napp Elasticity of Supply Like Demand, Supply can be elastic or inelastic. In general, supply tends to be initially inelastic because it takes time to increase supply. However, some goods are more elastic than others.
E. Napp Apples tend towards inelastic supply. It takes time to grow apples.
E. Napp The supply of haircuts can be increased more easily.
E. Napp Questions for Reflection: Define the Law of Supply. How does the Law of Supply differ from the Law of Demand? List two goods with inelastic supply. List two goods with elastic supply. Why does supply increase as price increase? Why does it take time to increase supply?