Transcript Supply

Supply
Unit 4
Organizing Principle
 The
invisible forces within the
marketplace determine supply,
which in turn determines price and
output(quantity).
Supply Terms
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Break-even point
Change in quantity
supplied
Change in supply
Diminishing returns
Elasticity of supply
Fixed cost
Increasing returns
Input cost
Law of supply
Marginal cost
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Marginal product
Marginal revenue
Productivity
Profit-maximizing
output
Supply
Supply curve
Supply schedule
Total product
Total revenue
Variable cost
Understanding Supply
•What
is supply?
•What is the law of supply?
•What are supply schedules and supply curves?
What is supply?

Supply is the willingness and ability of
producers to offer goods and services for sale.
 Why
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does supply matter?
Because most people are producers.
Producers have costs and receive rewards
for the work they do.
The Law of Supply
•
According to the law of supply, producers
willing to sell more of product at higher
than at lower price.
Price
Supply
As price
increases…
Quantity
supplied
increases
Price
As price
falls…
Supply
Quantity
supplied
falls
Law of Supply
 Quantity
supplied describes how much of
a good is offered for sale at a specific
price.
 The
promise of increased revenues when
prices are high encourages firms to
produce more.
Law of Supply
 EXAMPLE:

Smiths sell tomatoes at farmers’ market
 willing
to offer 24 pounds at standard price of
$1 per pound
 willing to offer 50 pounds at $2 per pound
 willing to offer 10 pounds at 50 cents per
pounds
 not willing to supply any tomatoes below 50
cents
Supply Schedules
 Individual

amount of product individual willing, able
to offer at each price
 Market
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supply schedule shows
supply schedule shows
amount of product all producers willing,
able to offer at each price
Uses market research
Individual Supply Schedule
Source: Economics:
Concepts & Choices –
Holt McDougal
Market Supply Schedule
Source: Economics:
Concepts & Choices –
Holt McDougal
Applying Economic Concepts
 Imagine
that you own a health food store
that sells several brands of nutrition bars.
Create a supply schedule showing how
many bars you would be willing to sell
each month at prices of $5, $4, $3, $2,
and $1.
Supply Curves
 Individual
supply curve shows data from
supply schedule in graph form
 Market
supply curve shows data from
market supply schedule
Supply Curves
Individual Supply Curve
Market Supply Curve
Source: Economics:
Concepts & Choices –
Holt McDougal
Jet wants to know…
Are we done yet?
Almost!
Quick Quiz!
What is the law of supply?
(a) the lower the price, the larger the quantity supplied
(b) the higher the price, the larger the quantity supplied
(c) the higher the price, the smaller the quantity supplied
(d) the lower the price, the more manufacturers will
produce the good
Quick Quiz!
What is the law of supply?
(a) the lower the price, the larger the quantity supplied
(b) the higher the price, the larger the quantity supplied
(c) the higher the price, the smaller the quantity supplied
(d) the lower the price, the more manufacturers will
produce the good
The End!
What Factors Affect
Supply?
How do input costs affect supply?
How can the government affect the supply of a
good?
What other factors can influence supply?
Change in Quantity Supplied
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Change in quantity supplied:
 rise
or fall in amount offered for sale because
of change in price
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Different points on supply curve show
change in quantity supplied
Change in Supply
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Change in supply—producers offer different
amounts at every price
As production costs rise, supply drops; as
costs drop, supply rises
Change in supply shifts the supply curve
Six factors cause change in supply
 input
costs, labor productivity, technology,
government action, producer expectations,
number of producers
Factor 1: Input Costs
 Input
costs—price of resources needed to
produce good or service
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if price of resource increases, costs increase
if price of resource decreases, costs
decrease
Factor 2: Labor Productivity
 Labor
productivity—amount of product
worker can produce in set time
 Rise in productivity lowers production
costs; supply increases
Factor 3: Technology
 Technology—use
of scientific methods,
discoveries in production
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results in new products or manufacturing
techniques
Factor 4: Government Action
 Excise
tax—tax on production or sale of
specific good or service
 Regulation—set
of rules, laws designed to
control business behavior
Factor 5: Producer
Expectations
 Producers
have expectations about
future price of their product
 Expectations
of higher price in future may
lead to different actions
Factor 6: Number of Producers
 When
one producer has successful new
idea, others enter the market

supply of good or service increases
 Increase
in number of producers leads to
increased competition

may drive less-efficient producers out of
market
Quick Quiz!
1. What affect does a rise in the cost of raw materials
have on the cost of a good?
(a) A rise in the cost of raw materials lowers the overall
cost of production.
(b) The good becomes cheaper to produce.
(c) The good becomes more expensive to produce.
(d) This does not have any affect on the eventual price of
a good.
2. When government actions cause the supply of a good
to increase, what happens to the supply curve for that
good?
(a) It shifts to the left.
(b) It shifts to the right.
(c) It reverses direction.
(d) The supply curve is unaffected.
Quick Quiz!
1. What affect does a rise in the cost of raw materials
have on the cost of a good?
(a) A rise in the cost of raw materials lowers the overall
cost of production.
(b) The good becomes cheaper to produce.
(c) The good becomes more expensive to produce.
(d) This does not have any affect on the eventual price of
a good.
2. When government actions cause the supply of a good
to increase, what happens to the supply curve for that
good?
(a) It shifts to the left.
(b) It shifts to the right.
(c) It reverses direction.
(d) The supply curve is unaffected.
Quick Quiz!
1. What affect does a rise in the cost of raw materials
have on the cost of a good?
(a) A rise in the cost of raw materials lowers the overall
cost of production.
(b) The good becomes cheaper to produce.
(c) The good becomes more expensive to produce.
(d) This does not have any affect on the eventual price of
a good.
2. When government actions cause the supply of a good
to increase, what happens to the supply curve for that
good?
(a) It shifts to the left.
(b) It shifts to the right.
(c) It reverses direction.
(d) The supply curve is unaffected.
Elasticity of Supply
What is elasticity of supply?
What factors affect elasticity of supply?
Elasticity of Supply
 Elasticity
of supply—measures producer
response to price changes
 Elastic—price
change leads to larger
change in quantity supplied
 Inelastic—price
change leads to smaller
change in quantity supplied
EXAMPLE: Elastic Supply
 As
product gains popularity, shortage
develops, price goes up
 Producers
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can increase supply if
resources are easy to come by, inexpensive
production uncomplicated, easy to
increase
EXAMPLE: Inelastic Supply
 Producers
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may not increase supply if
availability of resources limited
production capacity cannot be increased
shipping too costly or unavailable
What Affects Elasticity of
Supply?
TIME
• In the short run, a firm
cannot easily change
its output level, so
supply is inelastic.
• In the long run, firms
are more flexible, so
supply can become
more elastic.
Quick Quiz!
1. Elasticity of supply measures how responsive
(a) consumers are to price change
(b) government is to price change
(c) producers are to price change
(d) workers are to price change
2. Which of the following is most likely to have elasticity of supply
for their product?
(a) apple grower
(b) car manufacturer
(c) electronics manufacturer
(d) wedding-cake baker
Quick Quiz!
1. Elasticity of supply measures how responsive
(a) consumers are to price change
(b) government is to price change
(c) producers are to price change
(d) workers are to price change
2. Which of the following is most likely to have elasticity of supply
for their product?
(a) apple grower
(b) car manufacturer
(c) electronics manufacturer
(d) wedding-cake baker
Quick Quiz!
1. Elasticity of supply measures how responsive
(a) consumers are to price change
(b) government is to price change
(c) producers are to price change
(d) workers are to price change
2. Which of the following is most likely to have elasticity of supply
for their product?
(a) apple grower
(b) car manufacturer
(c) electronics manufacturer
(d) wedding-cake baker
The End!