Transcript Supply - Pearland ISD

Supply
• What producers are
willing and able to
sell at various prices
• The concepts that
apply to consumers
also apply to
producers
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Supply Schedule
Supply Curve
Market Supply
Ceteris paribus
Law of Supply
• The quantity supplied increases
as price increases
– When prices increase, producers
can maximize their profits by
selling more
• The quantity supplied decreases
as price decreases
– If prices fall, producers will likely
cut production to minimize losses
Law of Supply
• Supply is a direct
relationship
(Remember a
demand graph
shows an inverse
relationship.)
• As price increases,
supply increases
• As price
decreases, supply
decreases
Law of Supply: Market Entries & Exits
• The law of supply is partly
explained by market entries
& exits
• Let’s look at housing:
– If the prices for housing is
growing in Pearland, new
builders might come here to
sell more houses and
maximize profits. Therefore,
the supply of houses in
Pearland would increase
along with the prices.
Moving Along the Supply Curve
• Producers react in predictable
ways to changes in price
• Producers supply more at
higher prices and less at lower
prices- this is called “moving
along the supply curve” or a
change in the quantity
supplied.
• Like demand, the only thing
taken into account is PRICE
when moving along the curve.
Other factors can cause a supply curve
to SHIFT.
• This is called a change in supply. (as opposed to a
change in quantity supplied)
• Shifts can be caused by:
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The cost of inputs
Number of producers
Conditions due to disasters
Technology
Producer expectations
Government policy
Supply Elasticity
• Measure of the
sensitivity of producers
to a change in price
• As prices rise, producers
are motivated to
increase production to
increase revenue
• A producer with elastic
supply will respond to an
increase in price by
increasing supply
• In other words, when
price is elastic, a small
increase in price has a
big effect on supply.
Example: Antiques &
Newspapers
Antiques
• Producers cannot simply
“make” more antiques
• Antique supply is inelastic
Newspapers
• It’ fairly easy to simply
print more newspapers
• Their supply is elastic
Elasticity of Supply Formula
Elasticity of Supply
• Greater than 1: elastic
• Less than 1: inelastic
• Exactly 1: unitary
Just like demand, supply can become
more elastic over time
• Think about bananas
• Growers cannot
quickly increase
supply BUT- If the
price increase lasted
long enough,
growers would be
able to increase their
supply
What affects supply elasticity?
Elastic
Inelastic
Production
Possibilitie
s
Easy to
make more
Time Since
Price
Change
Short
production
time
Product
Storage
Easy &
cheap to
store
Difficult to Longer
Limitations
make more production on storage
time
(cost, time,
difficulty)
What is the
elasticity of
supply of
cakes if the
price
increases
from $4 to
$6?
Price of
T-shirt
$4
Quantity
Quantity
Supplied in
Supplied in
Fall/Winter Spring/Summ
er
3000
5000
$5
2400
4200
$6
1600
3000
$7
800
1800
What is the supply elasticity if the price rises
from $5 to $6 for both time periods?
Which time period is more elastic? Why?