1. Chapter 5 Section 1
Supply

2. Chapter 5 Terms: Supply Law of Supply
The amount of a product that would be offered for sale at all possible prices that could prevail in the market
Law of Supply
Principle that suppliers will normally offer more for sale at high prices and less at lower prices

3. Supply Schedule
Listing of various quantities of a particular product supplied at all possible prices in the market
Supply Schedule for Compact Discs
Quantity
Supplied
Price
$30 8
$25 7
$20 6
$15 4
$10 2 $5

4. Chapter 5 Terms cont: Supply Curve
Graph showing the various quantities supplied at each and every price that might prevail in the market
Decrease in Quantity
Supplied
$30
$25
$20
$15
$10 $5
Price b a
Increase in Quantity
Supplied 2 4 6 8 7
Quantity

5. Chapter 5 Terms cont: Market Supply Curve
Shows quantities offered at various prices by all firms that offer the product or service for sale in a given market.

6. Individual and Market Supply Curves
Firm A Supply Curve
Firm B Supply Curve
$30
$30
$25
$25
Price
$20
Price
$20 + =
$15
$15
$10
$10 $5 $5 2 4 8 3 6 7 1 2 5 7
Quantity
Quantity
Market Supply Curve
Quantity of CDs Supplied by:
$30
$25
Price
Firm A + Firm B = Market
Price
$20
$30
$15
$25
$10
$20 $5
$15 = 1 6
$10 3 9 11 15
Quantity
$ 5

7. Chapter 5 Terms cont: Quantity Supplied Change in Quantity Supplied
Amount producers bring to market at any given price
Change in Quantity Supplied
Change in amount offered for sale in response to a change in PRICE

8. Pause Chpt 5 Section 1

9. Chapter 5 Section 1 cont.
Factors Affecting Supply

10. Changes In Supply Change in Supply
Situation where suppliers offer different amounts of products for sale at all possible prices in the market

11. Factors leading to Change in Supply
$30
$25 b a’ b’
Price
$20 a
$15
$10 $5 1 3 2 4 5
Cost of Inputs
Change in cost of inputs can lead to change in supply
More or less expensive for producers to manufacture products
Labor
Transportation
Raw Materials etc.

12. Factors leading to Change in Supply
Productivity
Motivation of workers
Skill level of workers
Produce more products in less time
Technological improvements
Increases in speed, accuracy and efficiency
Produce more products in less time and/or with fewer workers

13. Factors leading to Change in Supply
Taxes and Subsidies
Taxes = Cost
Increased costs discourage production
Subsidies = Lower Cost and encourage production
Gov’t offers subsidies to encourage or protect certain types of economic activity deemed important
Farming
Alternative Energy
Recycling etc.

14. Factors leading to Change in Supply
Expectations
Expectations about the future price of a product can affect the supply curve.
NOTE: this is an “expectation”, not a change in price
Government Regulations
Laws, Guidelines, Regulations etc. can affect:
Quantities
Quality
Cost
Even Price

15. Factors leading to Change in Supply
Number of Sellers (competition)
As new sellers enter the market for a variety of reasons, the supply curve shifts right
As sellers leave the market, the supply curve shifts left

16. Elasticity of Supply Supply Elasticity
Measure of the way in which quantity supplied responds to a change in price

17. Three Elasticities of Supply
Elastic Supply
Change in price causes a relatively larger change in Quantity Supplied

18. Three Elasticities of Supply
Inelastic Supply
Change in price causes a relatively smaller change in Quantity Supplied

19. Three Elasticities of Supply
Unit Elastic Supply
Change in price causes a proportional change in Quantity Supplied