BELLRINGER  This Saturday I am throwing a princess party for 8 tiny 5-year-old princesses. I need YOUR help—baking, decorating, and helping out during the party. I need help from 7am-9pm (14 hours available).  Think about your plans this weekend. What hours are you willing and able to work at each price point?  $3/hour  $8/hour  $15/hour  Explain the economic reasoning for the hours you wrote down.

Understanding Supply CHAPTER 5.1

What Supply Means in Economics  Supply is the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period  Example: Jackie is willing to build and sell wooden chairs, but she doesn’t know how to build wooden chairs. She has the willingness, but not the ability. Thus, Jackie will not supply chairs. Duh!  PajamaJeans!

You Make the Call!!  Suppose you are a supplier, or producer, of PajamaJeans, and the price of a pair rises from $19.95 to $  Would you want to supply more or fewer pairs of PajamaJeans at the higher price?  If you said “Heck, yes!” congratulations—you instinctively understand the law of supply!

What is the Law of Supply?  The law of supply states that as the price of a good increases, the quantity supplied of the good increases, and as the price of a good decreases, the quantity supplied of the good decreases.  If P  then Q s   If P  then Q s 

Law of Supply vs. Law of Demand Law of Supply: If P  then Qs  If P  then Qs  Law of Demand: If P  then Q d  If P  then Q d 

Supply vs. Quantity Supplied  Remember: Supply refers to the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices  “supply” refers to the entire line !  Quantity supplied refers to the number of units of a good produced and offered for sale at specific prices  “quantity supplied” refers to an amount on the line!

Illustrating the Law of Supply  A supply schedule is a numerical chart illustrating the law of supply

Illustrating the Law of Supply  A supply curve is a graph that shows the amount of a good sellers are willing and able to sell at various prices

Firm’s Supply Curve vs. Market Supply Curve  Most of the goods supplied in the United States are supplied by business firms  Dell, Boeing, Heinz, Nike, etc.  A firm’s supply curve is what it sounds like: it is the supply curve for a particular business  A market supply curve is the sum of all firms’ supply curves

A Vertical Supply Curve  In some instances, goods can no longer be produced.  Examples?  Antonio Stradivari’s violins (he died)  Sold out concert S P Q Q1Q1 P1P1 P2P2 Q changes by 0% P rises by 10%

Bell Ringer  If Kathy sells kazoos for $1 each, she sells 100 units per day.  What is her TR per day?  If Kathy increases her price to $2 per kazoo, she sells 40 units per day. What is her new TR?  Are Kathy’s kazoos elastic or inelastic?  If Kathy’s TR were to increase after the price increase, would the good be elastic or inelastic?

The Supply Curve Shifts CHAPTER 5 SECTION 2

When Supply Changes, the Curve Shifts  Every time the supply of a good changes, the supply curve for that good “shifts”  Change in supply  Shift in supply curve  Quick video on supply (Widgets in the house!) Quick video on supply

When the Supply Curve Shifts  If supply increases, the curve shifts to the right  If supply decreases, the curve shifts to the left  Just like demand, yo!

What Factors Cause Supply Curves to Shift? (p. 118)

Supply Shifts Groups  You will be assigned one factor that shifts the supply curve to QUICKLY read about and present to the class.  You will make a poster with the following:  Name of factor  Explanation of how factor increases or decreases supply  Example of your factor and impact on a real good  Informal graph depicting your example and the way the curve shifts as a result

1. Resource Prices  When resource prices fall, sellers are W & A to produce and offer to sell more of the good  The good is cheaper to produce, so they make more of it. Supply curve shifts to the right!  When resource prices rise, sellers are W & A to produce and offer to sell less of the good  The good is more expensive to produce so they make less of it. The supply curve shifts to the… left

2. Technology  An advancement in technology is the ability to produce more output with a fixed amount of resources  This advancement lowers the per-unit cost, or average cost, of production  The sellers are willing and able to produce and offer to sell more output. The supply curve shifts to the… right

3. Taxes  Some taxes increase the per-unit costs  Suppose a manufacturer of baby bandanas must pay a $2 tax for each tiny bandana it produces.  The $2 increases the cost of doing business and causes the manufacturer to supply less output. The supply curve shifts to the… left

4. Subsidies  Subsidies are financial payments made by the government for certain actions  Suppose the government subsidized the production of corn by paying corn farmers $3 for every bushel of corn they produce  Farmers will want to produce more corn at every price. The supply curve shifts to the… right

5. Quotas  Quotas are restrictions on the number of units of a foreign-produced good (import) that can enter a country  Suppose Japan is sending 100,000 cars to the US each year and the US government imposes a quota on Japanese cars at 80,000 a year  A quota decreases supply, so the supply curve shifts to the… left

6. Number of Sellers  If more sellers begin producing a particular good, perhaps because of high profits, supply increases. The supply curve shifts to the… right  If some sellers stop producing a particular good, perhaps because of losses, the supply decreases. The supply curve shifts to the… left

7. Future Price  Sellers who expect the price of a good to be higher in the future may hold back the good now and supply the good to the market in the future. The supply curves shifts to the… left  Sellers who expect the price of a good to be lower in the future may want to supply the good now instead of later. The supply shifts to the… right

8. Weather  Bad weather may reduce the supply of many agricultural goods  Bad weather, such as a hurricane, may also damage fishing boats, oil refineries, etc  The supply curve shifts to the… left  Unusually good weather can increase the supply  The supply curve shifts to the… right

What Factor Causes a Change in Quantity Supplied?  Only one thing can cause a change in the quantity supplied PRICE

Elasticity of Supply  Elasticity of supply is the relationship between the percentage change in quantity supplied and the percentage change in price  Elastic supply exists when the quantity supplied changes by a greater percentage than price  Inelastic supply exists when the quantity supplied changes by a smaller percentage than price

Supply Curve Practice: Now you get to show your Understanding of the supply curve, as well as the 8 amazing factors that can cause it to shift!