Transcript Supply

SUPPLY
YOU HAVE TO THINK OF
YOURSELF AS A BUSINESS
OWNER
What is Supply?
 Supply
from ‘A’

Apples
effects everything
What is Supply?
 TO

Z
Zebras
Supply is the entire relationship
Between price and quantity
supplied

Supply is the other side of the
well-known economic
“equation” of supply and
demand.

An economic phenomenon

Not all firms produce/supply every
product

Supply reflects only what suppliers
are WILLING and ABLE to offer for
sale.
SUPPLY
REFERS TO THE QUANTITES OF
A GOOD THAT PRODUCERS ARE
WILLLING AND ABLE TO SELL
AT VARIOUS PRICES DURING A
GIVEN PERIOD OF TIME
LAW of SUPPLY
HUMAN
NATURE
…Desire for Profit…
SUPPLY

Why is there a direct relationship between
price and the quantity supplied.
Profit Motive
Revenue > Cost of Production = Profit
LAW of SUPPLY

That the higher the price, the greater the
quantity supplied

When prices decrease, the quantity
supplied is decreased
SUPPLY
 The price of a product or service and the quantity
supplied are directly related.
P
P
QS
QS
QUANTITY SUPPLIED
 The
amount a supplier is
WILLING and ABLE to supply at
a particular price, at a given
time.
QUANTITY SUPPLIED
CHANGE IN PRICE (of the
item) IS MOVEMENT ALONG
THE CURVE
SUPPLY
Supply schedule
A list of the quantities supplied at each and every
price when all other influences on selling plans
remain the same.
Supply curve
A graph of the relationship between the quantity
supplied and the price of the good when all other
influences on selling plans remain the same.
SUPPLY
CHANGE IN PRICE (of the
item) IS MOVEMENT ALONG
THE CURVE
Determinants of Supply
A SHIFT IN A SUPPLY CURVE
MEANS THAT AT EVERY PRICE,
PRODUCERS SUPPLY A
DIFFERENT QUANTITY THAN
BEFORE
Determinants of Supply
SHIFT HAPPENS
Determinates of SUPPLY

Changes in Supply

A change in the quantity that suppliers
plan to sell when any influence on selling
plans other than the price of the good
changes.

There is a new supply schedule and a
new supply curve.
 Prices
of Resources and Other Inputs
 Resource and input prices influence the cost of
production.
Price of inputs
Supply
Shift Left
Price of inputs
Supply
Shift Right
SUPPLY
Figure shows changes in
supply.
1. When supply
decreases, the supply
curve shifts leftward
from S0 to S1.
2. When supply
increases, the supply
curve shifts rightward
from S0 to S2.
Determinants of SUPPLY
The main influences on selling plans that change supply
are

Prices of resources and other Inputs

Productivity/Technology

Expectations

Government tools

Number of sellers

Prices of related goods (R/S)
DETERMINANTS OF SUPPLY






Resource costs
 (input/factor of production (CELL) costs)
Other goods’ prices
 (substitutes in production and joint/related
products)
Taxes/subsidies and regulations
Technology changes
Expectation of suppliers
Number of suppliers (competition)
Determinants of Supply
A SHIFT IN A SUPPLY CURVE
MEANS THAT AT EVERY PRICE,
PRODUCERS SUPPLY A
DIFFERENT QUANTITY THAN
BEFORE
CHANGE IN PRICE (of the
item) IS MOVEMENT ALONG
THE CURVE
A SHIFT IN A SUPPLY CURVE
MEANS THAT AT EVERY PRICE,
PRODUCERS SUPPLY A
DIFFERENT QUANTITY THAN
BEFORE
PRODUCERS
SUPPLY
FOR PROFIT
$$$$$$$$$$$$$
…PROFIT
the amount of money
remaining after
producers have paid
all their costs
…PROFIT
occurs when revenues
are greater than costs
of production
Cost of production incorporates:
 Rent/Mortgages
 Wages and salaries
 Interest on loans
 Utility bills (electric, phone)
 Raw materials
 Any other goods and services used
to manufacture a product
$$$$$$$The profit motive has a far
reaching effect in free-enterprise
markets.
It not only governs how individual
companies make decisions, it also
helps direct the use of resources in
the entire market.