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Published byPhilippa Malone Modified over 9 years ago
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Supply
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Demand is all about the buyer. Supply is all about the seller.
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The various amounts of something a producer is willing and able to sell at different possible prices at a particular time.
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Like demand, there is a price effect for supply. At higher prices, suppliers are willing to supply more goods and services than at lower prices.
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Why does OPEC (Organization of Petroleum Exporting Countries) strictly set and constantly change production rates for oil in the Middle East?
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The sum of all individual supplies in a given market at a particular time.
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Why would producer A supply 40 quarts of milk at 10 cents, and producer C supply 0 quarts of milk at that price?
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Producer C won’t offer any quarts of milk at 5 or 10 cents because its marginal cost of production is higher than those prices ◦ It costs more than 10 cents for producer C to make one quart of milk
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For example, suppose it costs $1000 to produce 100 units and $1020 to produce 101 units. The average cost per unit is $10, but the marginal cost of the 101st unit is $20
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If the change in price has a large impact on the amount of goods and services that are supplied, then the price effect is big and the supply is elastic.
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CHICKEN!! ◦ The number of chickens provided by chicken producers can increase greatly when the price of chickens goes up Because Marginal Cost of raising more chickens is not very high
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If a change in price has little impact on the quantity of a good or service supplied, then the price effect is small and supply is inelastic.
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Gasoline Custom Made Furniture Expensive Cars (Ferrari, Porsche…) All of these products have a high marginal cost of production
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The price effect concerns changes in quantity supplied (movements along the supply curve) True change in supply involves a shift to right (increase) or left (decrease)
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The price of gasoline has increased by 50 cents this past week because of unrest in the Middle East and particularly Libya ◦ Was there a change in supply in this instance?
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Remember! When price is changing, it is the price effect and NOT a change in demand The amount that was able to leave the Middle East and Libya decreased (not the amount actually in existence)
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Companies and employees find more efficient ways to produce their goods and decrease production costs. Sellers can then supply more at every possible price.
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When new businesses enter the market the supply will increase, causing the supply curve to shift to the right.
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If producers expect higher future prices for their product they may produce more today.
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