1. The amount of a good or service that is available
Supply

2. Law of Supply
Producers offer more of a good or service as its price increases and less as its price falls
Ceteris paribus, if a firm increases the price of a good or service, it will increase the firms profits
Quantity supplied: how much of a good or service a producer is willing and able to sell at a specific price
When price goes up, suppliers recognize the chance to make money & more suppliers want to enter the market

3. Supply Schedule
Shows the relationship between prices and quantity supplied

4. Supply Curve A graphic representation of the supply schedule
Similar to demand curve except now it measures the quantity of the goods supplied not demanded

5. In your notes..

6. In your notes..

7. Elasticity of Supply
Measures how firms will respond to changes in the price of a good or service

8. How many workers do you hire?
Costs of Production 3.5
How many workers do you hire?
Marginal product of labor: change in output from hiring one more worker
Increasing marginal returns: level of production in which the marginal product of labor increases as the number of workers increase
Diminishing marginal returns: when adding more workers increases total output but at a decreasing rate
Negative marginal returns: workers get in each others way, overall output decreases
Specialization
Limited capital

9. Costs of Production

10. Maximize profit when marginal cost = marginal revenue (price)
Profit = Total revenue – Total cost
Maximize profit when marginal cost = marginal revenue (price)

11. Changes in Supply 3.6
When do you sell?

12. Changes in Supply Several factors can cause a supply curve to shift
Number of suppliers
Government actions
Global events
But very important influence = suppliers’ input costs

14. Non-price determinants that alter supply shift the entire curve to the right or left

15. Non-price determinants of supply: Government Involvement
Subsidy: government payment that supports a business or market
Excise Tax: tax on the production or sale of a good
Quota: Government imposed trade restriction

16. Non-price determinants of supply: Changes in Global Economy & Supply
Large share of goods and services consumed by Americans is imported
Supply is affected by conditions in other countries
Indian wages are raised,
what happens to the supply
of carpets made in India?
Which was does the curve shift?

18. Non-price determinants of supply: Changes in Global Economy & Supply
The US imports oil from Russia,
Russia experiences a new oil discovery. What happens to the supply curve?

20. Expectations about Prices & Supply
You’re a soybean farmer and you expect prices of soybeans to double next month, what would you do with the crops you just harvested?
How does that affect supply in the soybean market for this month?

21. Changes in the Number of Competitors and Supply
Number of suppliers in the market
If more suppliers enter, supply rises
If suppliers leave the market, supply falls
When prices rise, people enter the market

22. Equilibrium 3.7
Prices are affected by laws of supply and demand, and government action
The point at which supply and demand come together is called Equilibrium
Point of balance
Quantity demanded = quantity supplied

23. Buyers will by as much as firms are willing to sell
Equilibrium
Buyers will by as much as firms are willing to sell

24. Disequlibrium Quantity supplied is not equal to quantity demanded
Any other price than equilibrium
Shortage
Surplus

25. Shortage
Shortage: (excess demand) Quantity demanded > quantity supplied
Actual price is below equilibrium price

27. Surplus
Surplus (Excess supply) Quantity supplied > quantity demanded
Actual price of is higher than equilibrium price

30. Price Ceiling
Price ceiling: Government imposed maximum price that can be legally charged for a GorS

31. Price Floors
Price floor: Minimum price set by government that must be paid for a GorS

32. Changes in Market Equilibrium
Changes in supply and demand upset market equilibrium

33. Changes in Market Equilibrium
Markets tend towards equilibrium, meaning price & quantity will gradually move towards equilibrium