CHAPTER 5— THE SUPPLY CHAPTER 5.1 “What is supply?”

2 Curves—Supply & Demand: Which one is which?

Why does supply increase as price increases?  Let’s think about it.  If you could tutor a kid after school, would you do it for… $1/hr? $5/hr? $7.50/hr $10/hr? $20/hr?  If yes, is this price high enough where you would be willing to work more than 1 hr/week? How about 5 hours at this price? Or 20 hours? $30/hr? $50/hr? $100/hr? $250/hr?

Duh The supply of students willing to stay after school for $250/hr is much greater than the supply willing to stay for $1/hr

Does supply apply only to labor?  In other words, as the price increases, would the production of GOODS also increase?  Personal Examples SUPPLY SCHEDULE OR SUPPLY CURVE?

Classwork  Ch. 5.1 Definition Subsidy

What would cause THIS to happen?

Reasons for Change in Supply?  Cost of Inputs  Productivity  Technology  Taxes and Subsidies  Expectations  Government Regulations  Number of Sellers

Supply Elasticity  If a small increase in price leads to a relatively larger increase in output, supply is ____________. ELASTIC INELASTIC

I need a…  Explain why the first is inelastic and the second is elastic.

Tickle Me Economics  Dec. 1996: Tickle Me Elmo was the hottest toy of the season Regular price--$23.99; Advertised in newspapers for as much as $500 Did the company want to supply more? Since manufacturing could not keep up with the demand, there was a temporary ____________ of supply. INELASTICITY

The supply curve for products that can be made quickly without huge amount of capital and skilled labor is ________.  ELASTIC Kites, candy, etc.  INELASTIC Planes, shale oil ***Unlike demand, ONLY production considerations determine supply elasticity.*** (Substitutes, ability to delay purchase, etc. are not important for supply elasticity)

Finally (for this section)…  Unit Elastic Supply KEY WORD: PROPORTIONAL (change)