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Unit 2: Supply, Demand, and Consumer Choice
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Supply
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Supply Defined EXAMPLE: Mowing Lawns
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? There is a DIRECT (or positive) relationship between price and quantity supplied. As price increases, the quantity producers make increases As price falls, the quantity producers make falls. Why? Because, at higher prices profit seeking firms have an incentive to produce more. EXAMPLE: Mowing Lawns
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Example of Supply You own a lawn mower and you are willing to mow lawns. How many lawns will you mow at these prices? Price per lawn mowed Quantity Supplied Supply Schedule 4
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GRAPHING SUPPLY Draw this large in your notes Supply Schedule
Price of Cereal Draw this large in your notes $5 4 3 2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 5
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GRAPHING SUPPLY Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 6
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companies start making
GRAPHING SUPPLY Supply Schedule What if new companies start making cereal? 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 7
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Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 8
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Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 9
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Change in Supply Supply Schedule Price of Cereal Supply $5 70 $4 60 $3
2 1 Price Quantity Supplied $5 70 $4 60 $3 50 $2 40 $1 10 30 o Q Quantity of Cereal 10
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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 11
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destroys corn and wheat
Change in Supply Supply Schedule What if a drought destroys corn and wheat crops? 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 12
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Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 13
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Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $3
2 1 Price Quantity Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q Quantity of Cereal 14
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Change in Supply Supply Schedule Price of Cereal Supply $5 30 $4 20 $3
1 Price Quantity Supplied $5 30 $4 20 $3 10 $2 1 $1 10 0 o Q Quantity of Cereal 15
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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 16
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What if cereal companies find a quicker way to make
Change in Supply Supply Schedule What if cereal companies find a quicker way to make cereal? 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 17
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6 Shifters (Determinants) of Supply
Prices/Availability of inputs (resources) Number of Sellers Technology Government Action: Taxes & Subsidies 5. Opportunity Cost of Alternative Production 6. Expectations of Future Profit Changes in PRICE don’t shift the curve. It only causes movement along the curve.
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6 Shifters (Determinants) of Supply
Prices/Availability of inputs (resources) More available resources means supply will _______ Fewer available resources means supply will _______ Lower wages (a resource) will mean supply ______ Increased wages means supply will _____________ 2. Number of Sellers If Apple is the only company making smartphones, then Samsung joins the field, supply will _________ If Pepsi were to go bankrupt, the supply of sodas would ____________. Increase Decrease Increase Decrease Increase Decrease
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6 Shifters (Determinants) of Supply
3. Technology Faster, or better technology allows supply of goods to ______________. A computer virus that halts production will force supply to _____________. 4. Government Action: Taxes & Subsidies Increased taxes on businesses force them to ________ supply. While decreased taxes allow them to ____________ supply. A subsidy is a government payment that supports a business or market. They ____________ supply. Increase Decrease Decrease Increase Increase
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6 Shifters (Determinants) of Supply
5. Opportunity Cost of Alternative Production If Burger King makes $2 profit on Whoppers and $1 profit on Chicken Sandwiches, they will __________ the supply of Whoppers and ____________ the supply of Chicken Sandwiches. 6. Expectations of Future Profit Today, the supply of Christmas goods in retail stores is _________________. Conversely, the supply of beach towels is ___________ today. Increase Decrease Increasing Decreasing
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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 22 22
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Supply Practice Hamburgers Mad cow disease kills 20% of cows
Which determinant (SHIFTER)? Increase or decrease? Which direction will curve shift? Hamburgers Mad cow disease kills 20% of cows Price of hamburgers increase 30% Government taxes burger producers Restaurants can produce burgers and/or tacos. A demand increase causes the price for tacos to increase 500% New bun baking technology cuts production time in half Minimum wage increases to $20 Decrease in availability of resources, decrease. Price doesn’t shift curve, no shift. Government action, decrease. Opportunity cost of alternative production, decrease. Technology, increase. Price of resources, decrease.
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