Transcript Supply - Coach Gilmore

Economics
Unit Three: Supply
Supply
• Supply refers to the willingness and ability of
producers to to offer goods and services for
sale
– Anyone who provides a good or service is a
producer
• Keep in mind that we are talking in “generally
speaking” terms…
Supply
• Understanding from a different POV
– We are all consumers, so demand is easy to
understand. However, supply is more difficult. Put
yourself in the position of a producer.
Supply
• What is your main goal as someone who is
providing a good or a service?
– PROFIT!!!
• You want to make sure that you are putting
yourself in the best position you can to make the
most money you can
• Your goal is to make the most profit for the
cheapest amount of money, time, & effort
• You also need the ability to produce
– You can desire to produce 1,000 cars, but unless you
have a car factory, it ain’t gonna happen
Law of Supply
• “Holding all else equal, when the price of a
good or service rises, suppliers increase their
quantity supplied for that good or service.”
– In other words, there is a direct, or positive,
relationship between the price and the quantity
supplied of a good
– This predicts an upward, or positive, sloping
supply curve
Law of Supply
• So…
– As prices fall, the quantity supplied falls
– As prices rise, the quantity supplied rises
• This is because producers are not willing to
increase their supply of a good or service if
they will not be able to maximize their profit.
– They will, however, increase their supply if their
consumers are willing and able (demand) to
purchase items at high price, and thus at a higher
profit margin, which would more then cover costs
Law of Supply
• As suppliers increase the quantity supplied of
a good, they face rising marginal costs
– As a result, they only increase the quantity
supplied of that good if the price received is high
enough to at least cover the highest marginal cost
– Basically, is your decision to produce making
sense?
Supply Schedule
• A supply schedule shows in a table that shows
how much of a good or service an individual
producer is willing and able to offer at each
price in a market
– A supply schedule shows the law of supply in table
form
– A market supply schedule is similar, however it
takes into account all producers in a market, not
just and individual producer
Supply Curve
• A supply curve is the line graph form of the
supply schedule, with all of its points plotted
on the graph
– Supply curve: individual producers
– Market supply curve: all producers
Supply Change Determinants
• In addition to the the price of the product itself,
there are a number of variables, or determinants
of supply, that account for the total supply of a
good or service
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The cost of an input
Technology
Taxes
Price expectations
Price of other outputs
Number of suppliers
Determinants
• Costs of Inputs:
– These are the various things that go into making a
product
• If cotton becomes cheaper, then making a t-shirt or
jeans will become cheaper
– This pushes the curve to the right
» Larger quantity, same price
• If cotton becomes more expensive, then making a tshirt or jeans will become more expensive
– This pushes the curve to the left
» Smaller quantity, same price
Determinants
• Technology or Productivity:
– A technological improvement improves the
producers ability to cut costs in producing a good
or service, and can thus allow the producer to
produce more products
• Think how the assembly line helped massively increase
productivity in this country, while cutting costs
Determinants
• Taxes:
– More taxes on business mean less profit for a
company, which mean less potential to supply
more goods or services
• Price Expectations:
– Producers may hold the supply back in
anticipation of more sales in the future
• Why don’t most stores sell coats for full price in the
summer, but they do in the winter? - PROFIT
Determinants
• Price of Other Outputs:
– Producers can use the same resources to produce
different goods
• If coffee becomes popular in a town, then the supply of
coffee would increase, while the supply of lemonade might
decrease
• Number of Suppliers
– When more suppliers enter the market, the supply
curve will shift to the right. When fewer suppliers are
in the market, the supply curve will shift to the left
In-Class Activity
• Complete the Supply and It’s Functions
worksheet using the graph paper supplied