Monday, February 23, 2015 Objective: Students will be able to describe the law of supply and the reasons supply changes. Purpose: Supply is one of the factors that determines price.

Supply Supply: the amount of a good available Law of Supply The quantity of a product supplied varies directly with price The higher the price, the larger the quantity that is produced This means that a producer will increase their supply as the price goes up

Law of Supply Law of Supply develops from the choices of both current producers and new producers As the price of a good rises, existing firms will produce more in order to earn a higher profit At the same time, new firms will enter the market to earn a profit for themselves

Law of Supply If the price of a good falls…. some firms will produce less some firms will drop out or leave the marketplace

Supply Graph Quantity supplied in on the x-axis Price is on the y-axis Each point on the line shows the price at each specified production level Slope is always positive

What causes a change in supply? Any change in the cost of an input used to produce a good (raw materials, machinery, or labor) will affect supply A rise in the cost of an input will cause a decrease in supply at all price levels A fall in the cost of an input will cause an increase in supply at all price levels

Changes in Supply Technology New machinery can reduce the cost of manufacturing Change in productivity New working methods for employees Structural changes to the workforce

Changes in Supply Taxes A government can reduce the supply of some goods by placing an excise tax (a tax on the production or sale of a good) This tax increases the production cost of the good Discourage the sale of goods (cigarettes, alcohol, high-pollutant gasoline)

Changes in Supply Government Regulations Change in the number of sellers of a type of good If more sellers enter the market, supply increases If sellers exit the market, supply decreases Future Expectations about price