1. SUPPLY An Introduction

2. What Can We See In Supply Graphs?
Reminder: Fully Label Your Graph
Title
Price
Quantity
Supply Curve
What do you notice in the supply graphs?
Resource Market
Households
sUPply curve
Price
Quantity

3. The Law (Principle) of Supply
As price rises, the quantity supplied rises
As price falls, the quantity supplied falls
To a supplier, PRICE=REVENUE or INCOME
Which serves as an incentive to produce & sell products or resources
The higher the price, the greater the incentive

4. Movement Along a Supply Curve
Market Supply Graph
Supply P1
As the price declines
from P1 to P, the quantity
Supplied decreases form Q1 to Q P Q Q1
Remember: A change in PRICE = A change in QUANTITY SUPPLIED

5. Shift in Supply Q Q1 S Market Supply Graph S1 Increase in Supply from
S to S1 shows that at
the same price (P),
the quantity increased from Q to Q1 P
A Change in a NON-PRICE
Factor = A Change in SUPPLY
thus, Movement of Entire Curve Q Q1

6. Supply Shifters
A shift to the right of a supply curve signifies an INCREASE in the supply
A shift to the left of a supply curve signifies a DECREASE in the supply S
Decrease P
Increase Q2 Q Q1

7. Determinants of Supply
Factors that shift supply are
Resource prices
Other related goods prices (# producer substitutes)
Technology
Taxes and subsidies (gov action)
Exceptional weather
Number of sellers in the market

8. Supply Circumstances
The supply of cars when open-trade agreements bring in new producers.
Shift right; increase in producers
The supply of coffee when freezing temperatures hit the major coffee-producing regions of Brazil and Costa Rica.
Shift left; natural disaster decreases inputs
The supply of lumber when a new computer-assisted saw reduces the cost of lumber production
Shift right; new technology decreases production costs
The supply of gasoline today if there is expected shortage and higher prices likely to occur next week.
Shift left; sellers want higher future prices, so they will decrease their supply today

9. Continued practice Supply of chocolate if a tax is imposed
Supply will shift left, a reduction in supply
Supply of wheat if subsidy is provided
Supply will shift right, increase

10. Quick Check The law of supply states
There is a positive relationship between price and quantity supplied
The graph of a supply curve is a downward slopping line
People usually supply fewer goods and services when their prices rise
People’s behavior in the marketplace is unpredictable

11. Quick Check When the price of an item changes, producers will usually:
Look at how the price change influences the relative value of their alternatives
Disregard a small change in price
Assume the item is on sale & produce more
None of the above

12. Quick Check
Which item will not change the supply for a good or service:
Expectations
Number of sellers
Price
Change in technology

13. Yea, that was GREAT!