1. Sutherland Module 6
Supply

2. QUIZ 3-INTRO TO SUPPLY 1. WHAT IS THE LAW OF SUPPLY?
2. DRAW A SUPPLY SCHEDULE (GO OUT FIVE PLACES)
3. TRANSFER YOUR SUPPLY SCHEDULE TO THE SUPPLY CURVE
4. SHOW A MOVEMENT ALONG THE SUPPLY CURVE (ONE WAY OR THE OTHER)
5. WHAT REASON WOULD CAUSE # 4 TO OCCUR? 2

3. 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?
As price increases, the quantity producers make increases
As price falls, the quantity producers make falls.
THIS IS THE OPPOSITE OF DEMAND
Why? Because, at higher prices profit seeking firms have an incentive to produce more. 3 3

4. GRAPHING SUPPLY EXAMPLE
Supply Schedule
Price of Cereal $5 4 3 2 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q
Quantity of Cereal 4

5. GRAPHING SUPPLY Supply Schedule Price of Cereal Supply $5 50 $4 40 $32 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q
Quantity of Cereal 5

6. THIS IS EXAMPLE OF JUST ONE SUPPLIER IN THE MARKET PLACE, BUT WHAT IF ANOTHER SUPPLIER ENTERS THE MARKET PLACE BECAUSE PROFITS LOOK GOOD? 6

7. As with demand, market supply is arrived at by horizontally adding up the individual supplies of all of the firms in the market. 7

8. MOVEMENT is caused merely by the change in price.
It is important to distinguish between a change in supply (meaning a SHIFT) of the supply curve and MOVEMENT along the supply curve.
SHIFT is caused by one of five factors or determinants other than price.
MOVEMENT is caused merely by the change in price. 8

9. There are 5 Determinants (SHIFTERS) of Supply
Change in Technology-Ex: Better v Worse
Prices/Availability of Inputs (resources)-Ex: Increase or Decrease Cost of Mach
Change in price of Related Goods or Services-Ex: Subs and Complements
Change in Expectations of Future Profits-Ex: Big Trucks & Little Cars
Change in number of Sellers Ex: Additional & Subtraction of Producers
REFER TO THESE AS T.I.R.E.S. 9 9

10. Although not made part of T. I. R. E. S
Although not made part of T.I.R.E.S. there is one additional factor that can SHIFT the Supply Curve and that is:
When the government increases/decreases taxes or decides to subsidize a good or service.

11. GRAPHING SUPPLY Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
For Example: What if new
companies start making
Cereal Because they see the Profit Potential?
(new producer)
Price of Cereal
Supply $5 4 3 2 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q
Quantity of Cereal 11

12. Prices didn’t change but there is MORE cereal produced
Change in Supply
Supply Schedule
Price of Cereal
Supply S2 $5 4 3 2 1
Price
Quantity
Supplied $5 70 $4 60 $3 50 $2 40 $1
10 30
Increase in Supply
Prices didn’t change but there is MORE cereal produced o Q
Quantity of Cereal 12

13. Change in Supply Or, What if a Drought Crops used to make cereal?
Supply Schedule
Or, What if a Drought
Comes and Destroys the Corn and Wheat
Crops used to make cereal?
(increased cost of inputs)
Price of Cereal
Supply $5 4 3 2 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q
Quantity of Cereal 13

14. Prices didn’t change but there is LESS cereal produced
Change in Supply
Supply Schedule
Price of Cereal
Supply S2 $5 4 3 2 1
Price
Quantity
Supplied $5 30 $4 20 $3 10 $2 1 $1
10 0
Decrease in Supply
Prices didn’t change but there is LESS cereal produced o Q
Quantity of Cereal 14

15. Supply Practice
First, identify the determinant (shifter) then decide if supply will increase or decrease
Shifter
Increase or Decrease
Left or Right 1 2 3 4 5 6 15

16. Sale of Hamburger Meat by Producer Company
Lets Try Some Examples
Which determinant (SHIFTER)?
Increase or decrease of Supply?
Which direction will curve shift?
Sale of Hamburger Meat by Producer Company
Mad cow disease kills 20% of cows
Price of burgers increase 30%
Restaurants sell both burgers and tacos. Demand increases for tacos 500%
New technology cuts production time in
half
5. Minimum wage increases to $10
6. Government increases tax on hamburgers 16 16

17. Quiz 10-Shifts in Supply
First, identify the determinant (shifter) then decide if supply will increase or decrease
Shifter
Increase or Decrease
Left or Right 1
Input
Decrease
Left 2
Law of Supply
Movement
Along Curve 3
Related Good 4
Technology
Increase
Right 5 6
Tax 17 17