Transcript Nature of Supply

Supply
Warm Up:
What is a good you can LEAST do without?
How much do you pay now, and how much
would you be willing to pay for it before you stop
using it? Explain whether this item is elastic or
inelastic for you.
Nature of Supply
Supply—is the quantity of goods and
services that producers are willing to
offer at various prices during a given
time period.
 The Quantity Supplied—is the amount
of a good or service that a producer is
willing to sell at each particular price.

The Law of Supply

Law of Supply—States that producers
supply more goods when they can sell
them at higher prices and fewer goods
when they must sell them at lower
prices.
Ex. MP3 players at $300 vs. $200
 Profit—The amount of money remaining
after producers have paid for all their costs.

Market Supply Curve
3.00
Supply
Price (in dollars)
2.50
2.00
1.50
1.00
.50
0
0
500
1000 1500 2000 2500 3000 3500
Output (slices per day)
Production Costs

Fixed Cost – cost that does not change,
no matter how much of a good is
produced


include rent, buildings, machinery, etc.
Variable Cost – a cost that rises or falls
depending on how much is produced

include wages, utilities, materials used in
production, etc
Production Costs
Total Cost = fixed costs + variable costs
 Marginal Cost – cost of producing one
more unit of good

Production Costs
Beanbags
(per hour)
Fixed
cost
Variable
cost
0
$36
$0
1
36
2
36
3
36
4
5
36
36
6
7
8
Total cost
(fixed cost +
variable cost)
Marginal
cost
Marginal
revenue
(market price)
Total
revenue
Profit
(total revenue –
total cost)
$36
—
$24
$0
$ –36
8
44
$8
24
24
–20
12
48
4
24
48
0
15
51
3
24
72
21
20
27
56
63
5
7
24
24
96
120
40
57
36
36
72
9
24
144
72
36
48
84
12
24
168
84
36
63
99
15
24
192
93
9
36
82
118
19
24
216
98
10
36
106
142
24
24
240
98
11
36
136
172
30
24
264
92
12
36
173
209
37
24
288
79
Elastic Supply

1.
2.
3.


Products with elastic supply can be:
Made quickly
Inexpensively
Use a few readily available resources
Sports teams apparel—tee shirts,hats
Ex. Super Bowl championship

Demand soars, prices rise, supply
increases.
Inelastic Supply


Inelastic supply—exists when a
change in a goods price has little
impact on the quantity supplied.
Inelastic supply if production requires:
Time
2. Money
3. Resources not readily available
Ex. Gold, fine art, space shuttles, etc.
1.
Inelastic Supply

Perfect inelastic supply exists when
producers, regardless of price, cannot
increase the quantity supplied.
Ex. Ocean front lots
 10 lots to sell—regardless of price
 Can charge more $ but cannot produce
more ocean front lots.

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