Transcript Supply - Cloudfront.net

• Learning Objective:
–Today I will be able to explain the
Law of Supply and Supply Elasticity
in a brief summary.
• Agenda
1.
2.
3.
4.
Learning Objective
Vocabulary: Ch. 4 & 5
Lecture: Ch. 5.1 Law of Supply
Exit Slip
CONTEMPORARY ECONOMICS:
LESSON 5.1
1
Role of Profit
• In trying to earn profit,
firms transform
productive resources
into products.
• Total revenue is the
total sales (dollars)
received from
consumers for a certain
time period.
CONTEMPORARY ECONOMICS:
LESSON 5.1
2
Role of Profit
• Profit=total revenue-total cost.
• Total cost includes the cost of
all resources used by a firm in
producing goods or services.
CONTEMPORARY ECONOMICS:
LESSON 5.1
3
Role of Profit
• Over time, total
revenue must cover
total cost for the
firm to survive.
• When firms break
even, total revenue
just covers total
cost.
CONTEMPORARY ECONOMICS:
LESSON 5.1
4
Role of Profit
• entrepreneurs
are always eager
to pursue their
dreams b/c of
profit.
CONTEMPORARY ECONOMICS:
LESSON 5.1
5
Check for Understanding
• Why are entrepreneurs willing to take risks??
• What are the risks???
CONTEMPORARY ECONOMICS:
LESSON 5.1
6
Supply
• Supply indicates
how much of a
good producers
are willing and
able to offer for
sale per period
at each possible
price, other
things constant.
CONTEMPORARY ECONOMICS:
LESSON 5.1
7
• The law of supply says that
the quantity supplied is
usually directly related to its
price, other things constant.
– If Price then Quantity
Supplied
– If Price then Quantity
Supplied
• The supply curve is a curve or line
showing the quantities of a
particular good supplied at various
prices during a given time period,
other things constant.
CONTEMPORARY ECONOMICS:
LESSON 5.1
8
Supply Schedule
Price
per Pizza
Quantity Supplied
per Week (millions)
$15
12
9
6
3
28
24
20
16
12
CONTEMPORARY ECONOMICS:
LESSON 5.1
9
Supply Curve
S
Price per pizza
$15
12
9
6
3
0
12 16 20 24 28
Millions of pizzas per week
CONTEMPORARY ECONOMICS:
LESSON 5.1
10
More Willing to Supply
• As a price increases, a producer becomes more
willing to supply the good.
• Prices act as signals to existing and potential
suppliers about the rewards for producing
various goods.
• A higher price makes production more
profitable and attracts resources from lowervalued uses.
CONTEMPORARY ECONOMICS:
LESSON 5.1
11
More Able to Supply
• Higher prices also
increase the
producer’s ability to
supply the good.
• The marginal cost of
production increases
as output increases.
CONTEMPORARY ECONOMICS:
LESSON 5.1
12
More Able to Supply
• A higher price
makes producers
more able to
increase quantity
supplied.
CONTEMPORARY ECONOMICS:
LESSON 5.1
13
More Able to Supply
• As the price
declined, the
quantity
supplied
declined.
CONTEMPORARY ECONOMICS:
LESSON 5.1
14
More Able to Supply
• In short, a higher
price makes
producers more
willing and better
able to increase
quantity supplied.
CONTEMPORARY ECONOMICS:
LESSON 5.1
15
Check for Understanding
• What is the Law of Supply???
• When are producers more able and willing to
supply?
CONTEMPORARY ECONOMICS:
LESSON 5.1
16
Supply Vs. Quantity Supplied
• Supply is the entire
relation between the price
and quantity supplied, as
reflected by the supply
schedule or supply curve.
• Quantity supplied refers to
a particular amount
offered for sale at a
particular price, as
reflected by a point on a
given supply curve.
CONTEMPORARY ECONOMICS:
LESSON 5.1
17
Individual Supply
and Market Supply
• Individual supply —the supply of an
individual producer
• Market supply —the supply of all producers
in the market
– Individual supply curves are summed across to get
a market supply
CONTEMPORARY ECONOMICS:
LESSON 5.1
18
Summing Individual Supply Curves
to Find the Market Supply Curve
CONTEMPORARY ECONOMICS:
LESSON 5.1
19
Elasticity of Supply
• The elasticity of
supply measures
how responsive
producers are to a
price change.
CONTEMPORARY ECONOMICS:
LESSON 5.1
20
Measurement
• Elasticity of supply equals percentage change
in quantity supplied divided by percentage
change in price.
Elasticity
of supply
=
% change in quantity
supplied
% change in
price
CONTEMPORARY ECONOMICS:
LESSON 5.1
21
Categories of
Supply Elasticity
• Supply is elastic if more than 1.0
• Supply is unit elastic if = 1.0.
• Supply is inelastic if less than 1.0.
CONTEMPORARY ECONOMICS:
LESSON 5.1
22
Determinants of
Supply Elasticity
• One important
determinant of supply
elasticity is the length of
the adjustment period
under consideration.
– The elasticity of supply is
typically greater the longer
the period of adjustment.
CONTEMPORARY ECONOMICS:
LESSON 5.1
23
Market Supply Becomes More Elastic
Over Time
Sm
Sw
Sy
Price per gallon
$1.25
1.00
0
100
200
300
Millions of gallons per day
CONTEMPORARY ECONOMICS:
LESSON 5.1
24
Check for Understanding
• What does the elasticity of Supply measure?
• What is the formula?
• So then, what determines Supply Elasticity?
CONTEMPORARY ECONOMICS:
LESSON 5.1
25
CONTEMPORARY ECONOMICS:
LESSON 5.1
26
Exit Slip
• What is the Law of Supply?
• What does Elasticity of Demand
measure?
CONTEMPORARY ECONOMICS:
LESSON 5.1
27