Supply 1

Supply Defined What is supply? Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices. What is the Law of Supply? There is a DIRECT (or positive) relationship between price and quantity supplied. As price increases, the quantity producers make increases As price falls, the quantity producers make falls. Why? Because, at higher prices profit seeking firms have an incentive to produce more. 2

Example of Supply You own an lawn mower and you are willing to mow lawns. How many lawns will you mow at these prices? Price per lawn mowed Quantity Supplied Supply Schedule 3 $1 $5 $20 $50 $100 $1000

GRAPHING SUPPLY Q o $ Price of Cereal Quantity of Cereal Supply Schedule Draw this large in your notes 4 Price Quantity Supplied $550 $440 $330 $220 $110

GRAPHING SUPPLY Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply

GRAPHING SUPPLY Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if new companies start making cereal?

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $55070 $44060 $33050 $22040 $ Supply

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Supply S2S2 Price Quantity Supplied $55070 $44060 $33050 $22040 $ Increase in Supply Prices didn’t change but there is MORE cereal produced

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if a drought destroys corn and wheat crops?

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $55030 $44020 $33010 $2201 $110 0 Supply

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Supply S2S2 Price Quantity Supplied $55030 $44020 $33010 $2201 $110 0 Decrease in Supply Prices didn’t change but there is LESS cereal produced

Change in Supply Q o $ Price of Cereal Quantity of Cereal Supply Schedule Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if cereal companies find a quicker way to make cereal?

6 Shifters (Determinants) of Supply 1.Prices/Availability of inputs (resources) 2.Number of Sellers 3.Technology 4.Government Action: Taxes & Subsidies 5. Opportunity Cost of Alternative Production 6. Expectations of Future Profit Changes in PRICE don’t shift the curve. It only causes movement along the curve. 17

1. Prices/Availability of inputs (resources) 18 All resources have cost associated with them. The resource costs determine the production cost of the good or service.

2. Number of Sellers in the Market More sellers in the market means more competition for market share which is good for the consumer 19

3. Technology Technological change is constant. Advances in technology affect production costs and partly determine which goods and services get produced. 20 From this to this

4. Government Action: Taxes & Subsidies 21 A subsidy is a government that supports a business or a market. Subsidies cause the supply of a good to increase.

5. Opportunity Cost of Alternative Production 22 Changing production from one good to the production of a more profitable one. Retooling the factory to produce the new (2015) Mustang instead of the previous model Mustang is an expensive venture

6. Expectations of Future Profit 23 Producer expectation of rising future prices affects quantity produced today.

Supply Practice First, identify the determinant (shifter) then decide if supply will increase or decrease 24 Shifter Increase or Decrease Left or Right

Supply Practice Hamburgers 1.Mad cow disease kills 20% of cows 2.Price of hamburgers increase 30% 3.Government taxes burger producers 4.Restaurants can produce burgers and/or tacos. A demand increase causes the price for tacos to increase 500% 5.New bun baking technology cuts production time in half 6.Minimum wage increases to $20 1.Which determinant (SHIFTER)? 2.Increase or decrease? 3.Which direction will curve shift? 25