1. Supply What producers are willing and able to sell at various prices
The concepts that apply to consumers also apply to producers
Supply Schedule
Supply Curve
Market Supply
Ceteris paribus

2. Law of Supply The quantity supplied increases as price increases
When prices increase, producers can maximize their profits by selling more
The quantity supplied decreases as price decreases
If prices fall, producers will likely cut production to minimize losses

3. Law of Supply
Supply is a direct relationship (Remember a demand graph shows an inverse relationship.)
As price increases, supply increases
As price decreases, supply decreases

4. Law of Supply: Market Entries & Exits
The law of supply is partly explained by market entries & exits
Let’s look at housing:
If the prices for housing is growing in Pearland, new builders might come here to sell more houses and maximize profits. Therefore, the supply of houses in Pearland would increase along with the prices.

5. Moving Along the Supply Curve
Producers react in predictable ways to changes in price
Producers supply more at higher prices and less at lower prices- this is called “moving along the supply curve” or a change in the quantity supplied.
Like demand, the only thing taken into account is PRICE when moving along the curve.

6. Other factors can cause a supply curve to SHIFT.
This is called a change in supply. (as opposed to a change in quantity supplied)
Shifts can be caused by:
The cost of inputs
Number of producers
Conditions due to disasters
Technology
Producer expectations
Government policy

7. Supply Elasticity
Measure of the sensitivity of producers to a change in price
As prices rise, producers are motivated to increase production to increase revenue
A producer with elastic supply will respond to an increase in price by increasing supply
In other words, when price is elastic, a small increase in price has a big effect on supply.

8. Example: Antiques & Newspapers
Producers cannot simply “make” more antiques
Antique supply is inelastic
It’ fairly easy to simply print more newspapers
Their supply is elastic

9. Elasticity of Supply Formula

10. Elasticity of Supply Greater than 1: elastic Less than 1: inelastic
Exactly 1: unitary

11. Just like demand, supply can become more elastic over time
Think about bananas
Growers cannot quickly increase supply BUT- If the price increase lasted long enough, growers would be able to increase their supply

12. What affects supply elasticity?
Production Possibilities
Time Since Price Change
Product Storage
Elastic
Easy to make more
Short production time
Easy & cheap to store
Inelastic
Difficult to make more
Longer production time
Limitations on storage (cost, time, difficulty)

13. What is the elasticity of supply of cakes if the price increases from $4 to $6?

14. Price of T-shirt
Quantity Supplied in Fall/Winter
Quantity Supplied in Spring/Summer $4
3000
5000 $5
2400
4200 $6
1600 $7
800
1800
What is the supply elasticity if the price rises from $5 to $6 for both time periods?
Which time period is more elastic? Why?