Transcript Supply - Unit 1

The
Wonderful
World of…..
Supply
Essential Standards
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The student will explain how the Law of
Supply works to determine production and
distribution in a market economy.
The student will define the Law of Supply.
The student will identify and illustrate on a
graph the factors that cause changes in
market supply.
The student will define price elasticity of
supply.
Two Definitions of “Supply”
►Supply—the
amount of goods
available.
►Quantity
Supplied—the
amount a supplier
is willing and able
to supply at a
certain price.
The Law of Supply
An increase in the price of a good or
service leads to an INCREASE in the
quantity supplied…
 A decrease in the price of a good or
service leads to a DECREASE in the
quantity supplied.
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Price
and Quantity
Supplied have a DIRECT
relationship.
Supply Schedule
Price per Car
Stereo
 $500
 $400
 $300
 $200
 $100
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Quantity
Supplied
 4000
 3750
 3500
 2500
 0
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Supply Curve
P
R
I
C
E
$600
$500
$400
$300
$200
$100
$0,0
1000
2000
3000
4000
5000
6000
Quantity Supplied
Elasticity of Supply
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Elasticity of Supply—a
measure of the way
quantity supplied reacts
to a change in price.
An orange grove owner
has an INELASTIC
supply.
A factory that makes
plastic calculators has
and ELASTIC SUPPLY.
If demand rises, the
factor can run 24
hours/day, quickly
increasing the supply of
calculators.
Which of the following would have the
most elastic supply?
A.) Super Bowl Champ T- Shirts
B.) Peanuts
C.) Diamond Rings
D.) Peaches
Supply
Shifts
►
►
1.
•
2.
•
3.
When the entire supply of a product increases or decreases, the
supply has SHIFTED.
What would cause a product’s supply to shift?
Prices of RESOURCES—if the price of lumber rises, the supply
of furniture will…
Shift to the LEFT.
Technology—when Henry Ford perfected the assembly line, the
automobile supply…
Shifted to the RIGHT.
Government actions—taxes; subsidies; regulations.
The price of cotton skyrockets.
What will happen to the supply of Tshirts and sweaters?
A.) Supply will decrease
B.) Supply will increase
C.) Cotton is not a resource for T-shirts
Government Influence-Subsidies
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Subsidy—a government payment that
supports a business or market.
For example—giant agribusiness Archer
Daniels Midland is paid tens of million of
dollars every year…
NOT to grow certain crops…
Which causes supply to shift to the
LEFT…
When supply is low, prices…
RISE…
Which increases the profits of the giant
agribusinesses (like Cargill) who DO
produce those crops.
What does the average American get
from this deal?
Higher taxes and higher prices.
Government Influence--Taxes
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Excise Tax—a tax on the
production or sale of a
good.
Excise taxes increase
production costs by adding
an extra cost for each unit
sold…
And result in a supply shift
to the LEFT.
They are often used on
harmful products, like
cigarettes & alcohol.
If the US government raises taxes
on all soft drink producers the
supply of soft drinks will
____________.
A.) Increase
B.) Decrease
C.) Remain the same
Government Influence--Regulation
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Regulation—government
intervention in a market that
affects the production of a
good.
Regulation increases
costs…and lowers supply.
Example—when minimum
wage is INCREASED…
Firms often respond by laying
workers off…
If a business goes from 80
workers to 65 workers…
The supply of their product will
shift…
To the LEFT.
Congress lowers the minimum wage from
$7.25 to $5.00. What will happen to the
supply of fast food in the United States?
A.) Remain the same
B.) Increase
C.) Decrease
Future Expectations
► Future
expectation of
prices—if a seller expects
the price of a good will
rise in the future…
► They will store the good
& the supply will SHIFT
TO THE LEFT.
► If they expect a price
drop, they will sell
► NOW…
► And the supply will…
► SHIFT TO THE RIGHT.
Number
of
Suppliers
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If more suppliers enter the market…
The supply of whatever good they’re selling will…?
Shift to the RIGHT.
If suppliers stop producing and leave the market…
The supply will…?
Shift to the LEFT.