CH 4: DEMAND – Consumer perspective related to BUYING stuff (goods and services) CHAPTER 5: SUPPLY – Producer perspective related to MAKING stuff (goods and services)

WHAT ARE YOU WORTH? Rate for Labor per Hour # of Students willing to work at such rate $8.50/hr $10.00/hr $11.50/hr

YOU ARE A PRODUCER! ….OF WHAT??? LABOR

PRODUCTION MENTALITY Given the choice, each of you would prefer to work for $11.50 per hour rather than $8.50 per hour. Each of you would prefer to earn more money rather than less as a laborer. This is the way PRODUCERS think…. Given the choice, producers would rather sell their goods/services for high prices instead of low prices.

SUPPLY The willingness and ability of producers to make goods and services available for sale in the market at various quantities and various prices

SUPPLY SCHEDULE A table of prices and quantities that shows amounts of a product producers are willing and able to make available for sale at a set of prices during a specific time period.

SUPPLY SCHEDULE Price Quantity Supplied

SUPPLY CURVE A graph of prices and quantities that shows amounts of a product producers are willing and able to make available for sale at a set of prices during a specific time period.

Supply Curve Qs P S

Law of Supply The Quantity Supplied (offered for sale) varies directly with price. If price goes up, producers will offer greater quantities for sale. If price goes down, producers will offer smaller quantities for sale.

DEMANDPRICESUPPLY

DEMANDPRICESUPPLY

Change in Quantity Supplied * Caused by an immediate change in the PRICE of the item you want to sell * Example: Crombie’s Store will offer 5 HDTV units at a reduced price of $400, but it will offer 25 HDTV units for sale at $750. Crombie’s Store would prefer to sell more HDTVs at higher prices rather than lower prices. * A change in quantity supplied is illustrated by movement ALONG a supply curve, from point to point as the price of the good or service changes.

Supply Curve Qs P S

Change in Supply Caused by one of seven determinants of supply a change in Supply is illustrated by a new Supply curve Increase in supply moves the curve to the RIGHT Decrease in supply shifts the curve to the LEFT

Supply Curve Qs P *Increase in Supply – Curve shifts from S to S1 *Decrease in Supply – Curve shifts from S to S2 S S2 S1

DETERMINANTS OF SUPPLY 1.Cost of Inputs 2.Productivity 3.Technology 4.Number of Sellers 5.Taxes and Subsidies 6.Expectations 7.Government Regulations

Cost of Inputs/Resources I own a coffee shop in PA and sell Kona Coffee from Hawaii to my customers Kona, Hawaii was crushed by a hurricane The price of Kona coffee beans increases, causing the cost of my INPUT or RESOURCE to increase I have __________Kona coffee to offer for sale (________in supply/production)

Productivity/Efficiency EX: I employ a bunch of high school kids at my sandwich shop who hate to work. They lower my productivity because they are slow in waiting on customers (_________ in supply/production) EX: I hire 2 great workers to help during the lunch rush, increasing the number of happy customers we serve (_________ in supply/production)

Technology EX: I purchase a new conveyor belt for my toy manufacturing plant, which speeds up production and __________ the supply/production of toys EX: My computer crashes and production comes to a halt, ___________supply/production

Number of Sellers EX: Pizza Shops – There are a bunch of them. This _________ the supply of pizza on the market. EX: Master Sculptors / Brain Surgeons / MVP Professional Athletes– Not so many of them. This __________ the supply of sculptor/surgical/athletic services on the market.

TAX TAXES are paid BY producers TO the government as a “fee” for the right to work and/or sell goods and services. TAXES take money away from producers, _________ production/supply. EX: Natural Gas Extraction Tax – paid BY drilling companies to the state government EX: SALES TAX – paid BY McDonald’s to the government (passed on to you) TAXES ON PRODUCERS ARE OFTEN PASSED ON TO CONSUMERS

SUBSIDY SUBSIDIES are paid BY the government TO producers to encourage or protect a certain economic activity. Subsidies can increase or decrease production/supply EX: Farmers receive subsidies FROM the government to grow more corn, to encourage ethanol production (________ in supply) EX: State universities receive subsidies from the PA government to help keep tuition costs down for residents (________ in supply) EX: Car companies receive subsidy to stop producing trucks and SUVS (________ in supply)

Expectations Anticipation of future events / price changes can increase or decrease supply EX: BP expects the price of oil to increase next week, so it offers ______supply of gas for sale now at lower prices EX: BP expects the price of oil to decrease next week, so it offers _____ for sale at higher prices this week

Government Regulations Laws impact the ability of producers to work efficiently, add to costs EX: Manufacturing plants have to follow safety laws and regulations to protect workers (goggles, hard hats, etc.), increasing the cost of production and cause manufacturing to __________ EX: Health inspectors can shut down a restaurant that is not sanitary (_________ in supply of food offered for sale)