Transcript Supply Curve

Mr D’s Pizzeria
Demand Curve
 Draw a demand curve for the following:
Price of a slice of pizza
$1
$2
$3
$4
$5
$6
Quantity demanded
300
250
200
150
100
50
Supply
 The ability and willingness of sellers to
make goods available for sale.
 Ability means seller is able to produce and
sell a product or service.
 Willingness means the seller wants to
produce or sell it.
Law of Supply
 The law of supply states that producers
will increase the quantity supplied at
higher prices and decrease the quantity
supplied at lower prices, if everything
else remains the same.
Supply Curve
 A Supply Curve is a graphical depiction
of a supply schedule plotting price on the
vertical axis and quantity supplied on the
horizontal axis. The supply curve is
upward-sloping, reflecting the law of
supply.
Example: renting videos
Price Quantity Supplied
$5
50
$4
40
$3
30
$2
20
$1
10
Supply Curve
 Key feature of the supply curve is that it
always rises from left to right.
Elasticity of Supply
 Measures how changes in price affect
the quantity supplied.
 Supply is elastic if a change in price has
a big effect on the quantity supplied.
 If a change in price has little effect on
quantity supplied, the supply is inelastic
Inelastic supply
 Ex. Oranges
 Orange trees take years to grow, If price
goes up it will take you years to produce
more.
 If price goes down, the oranges are already
going to grow since you already have the
land and trees will probably pick as many as
before the price drop.
Elastic supply
 Ex. Haircuts.
 Price goes up barber stays open later; hires
more haircutters.
 Price goes down, reduce hours; layoff
haircutters.
 Supplier can quickly adjust to change.
Changes in Supply
 The supply curve can shift to the right or
left as conditions in the market change.
 Non-price determinants of supply cause
these changes.
 A supply curve shift indicates a change in
the amount of goods and services that
will be supplied with no change in price.
Things other than price
which can supply
 Production costs: This is the most
important and the most typical reason for
change.
 The price of ingredients, capital goods,
rent or labor changes and moves the
supplycurve. New technology could make
productions more or less expensive.
 Taxes and subsidies: Taxes increase
costs; subsidies lower costs.
 Complementary goods: Gas prices go
up there are less gas guzzling made and
more compact vehicles are made.
 Substitutes: When the price of fuel oil
goes up there is a greater supply of
firewood.
 Future price expectations: Producers'
confidence in the future, often difficult to
quantify or justify, affect the amount of a
good or service that they’re willing to
produce.
 Number of sellers: Businesses enter
and exit a market regularly based on a
variety of reasons; so, changes in the
number of producers will affect the
supply of the product.
Where Demand and Supply
Meet – Equilibrium Price
 Supply and Demand meet at the
equilibrium price. This is the price both
buyers and sellers will accept.
 Where the demand and supply curves
intersect is the equilibrium that
determines the point at which price and
quantity sold are determined.
 Equilibrium is the price toward which market
activity moves.
 If the market price is below equilibrium, the
individual decisions of buyers and sellers will
eventually push it upward. (Scarcity of the
good will cause its price to be bid up by those
who are willing to buy the good.)
 If the market price is above equilibrium, the
opposite will tend to happen.
Shortage
 Shortage: Demand at a given price is
greater than the producer is willing to sell
at that price.
Surplus
 Seller is willing to supply more than than
buyers are willing to pay.