Transcript Law of Supply

Do Now
1. A new video game system is released just before Christmas,
and everyone's "gotta have it." As parents race to the store to
buy the system for their kids, the price throughout December
holds steady at $349.99. What do you think will happen to the
price in January? …February? …June?
2. Local stores sell a fleece jacket for about $50. Sales of the
jacket are good, but not great. However, when consumers
learn that Lebron James wears this jacket, sales increase.
What do you think will happen to the price?
3. When a motorcycle manufacturer announces that it will no
longer make its most popular model of bike, what do you think
will happen to the price of the bike?
4. Mrs. Taylor sells chocolate molasses cookies. They are
delicious, and she is the only one in town who makes them.
However, when Ms. Brown moves to town, she begins to make
cookies, without any difference in quality from Mrs. Taylor's
cookies. What will likely happen to the price of Mrs. Taylor's
cookies?
How do suppliers decide what
goods and services to offer?
Supply:
the amount
of goods
available
Law of Supply:
producers offer
more of a good
as its price
increases, and
less as its price
falls
Quantity
supplied: the
amount that a
supplier is
willing and able
to supply at a
specific price
• Supply is slightly more difficult to understand than
demand, because most of us have little direct
experience on the supply side of the market.
• Supply comes from a producer's desire to
maximize profits.
• When the price of a product rises, the supplier
has an incentive to increase production
• He can justify higher costs to produce the
product, which increases the potential to earn
larger profits.
• Profit is the difference between revenues and
costs. If the producer can raise the price and
sell the same number of goods while holding
costs constant, then profits increase.
• The law of supply says that, if all other things
are equal, as the price of a good rises, its
quantity supplied will rise, and vice versa.
• This table lists the
quantity supplied of
rental videos for various
prices.
– At $5, the producer has
an incentive to supply 50
videos. If the price falls to
$4 quantity supply falls to
40, and so on. The figure
titled "Supply Curve" plots
this positive relationship
between price and
quantity supplied.
Price
$5
Quantity
Supplied
50
$4
40
$3
30
$2
20
$1
10
• A supply curve is a
graphical depiction
of a supply
schedule.
• The supply curve is
upward-sloping,
reflecting the law of
supply
…..
• A Supply Schedule is a chart that shows how much of a
good a supplier will offer at various prices
• Variables: factors that change
Price per slice of pizza
Slices supplied per day
$1.00
100
$2.00
150
$3.00
200
$4.00
250
$5.00
300
$6.00
350
• Elasticity of Supply:
a measure of the way
quantity supplied
reacts to a change in
price
Quantity
supplied
rises
Law of
Supply
Supply inelastic
in the
short term
Supply
Quantity
supplied
declines
Elasticity
Supply elastic
In long run