2. Supply
Demand is usually a much easier concept for
students because it deals with the
consumption side of the economy—and
students are familiar with being consumers.
Now you have to change roles to understand
supply. Think as a business owner. What
would you want to do if you owned a
business and you were on the production
side of the economy?
3. Supply
The Law of Supply—The quantity of a
product supplied varies directly with price,
ceteris paribus.
--This means the producer will increase their
supply as price goes up, other factors held
constant.
4. Supply
Individual Supply Schedule—A chart or table
that lists the quantity that one supplier will
produce at each given price
Market Supply Schedule– A chart or table
that lists the quantity that all producers within
an industry or market will produce at each
given price
5. Supply
Supply curve—Graph that represents the
different quantities that will be supplied at
each given price (there are individual and
market supply curves, just as there are
individual or market supply schedules)
7. Change in Quantity Supplied
This is a movement ALONG the curve
resulting from a change in price
As prices change, producers will be willing to
produce more or less (depending on the
direction of the price change) resulting in a
new point on the same graph
9. Change in Supply
Change in supply is when there is a shift in
the entire supply curve resulting from some
outside force that changes the amount of a
product supplied at each given point
10. Change in Supply
Cost—how much the supplier must pay to
make the item
Price—how much the supplier will earn when
they sell the item
11. Change in Supply
Say you are a producer. What would cause
you to produce MORE or LESS of a product,
even though the price (how much you will
earn when you sell the product) doesn’t
change at all?
12. Change in Supply
Determinants of Supply—Forces that will
cause the entire supply curve to shift either
left or right (so producers will produce more
or less, even though the price of the product
has not changed)
13. Determinants of Supply
Factor costs—if the cost of production
increases, the selling price will have to rise to
cover these costs
--so anything that will affect the cost of ANY
of the factors of production (land, labor,
capital) will shift the curve
14. Determinants of Supply
Technology and regulations—new production
technology can lower the cost of production;
regulations and requirements implemented
by the government will raise the cost of
production
15. Determinants of Supply
Expectations—future expectations of the
market or industry may cause a firm to adjust
its quantity supplied
The number of firms—when more firms enter
the industry, more of the good can be offered
at each price
16. Determinants of Supply
The bottom line—
ANYTHING that changes how long it takes to
produce or how much it costs to produce will
change supply and shift the supply curve
17. Movement of the Supply Curve
If it costs more to make an item, will you
make more or less?
LESS, so the curve shifts LEFT (just like the
demand curve)
If is costs less to make an item, will you
make more or less?
MORE, so the curve shifts RIGHT (just like
the demand curve)
19. Supply Elasticity
Supply curves, like demand curves, have
different slops.
They can be more vertical or more
horizontal, and this is due to differences in
supply elasticity.
However, the determinants of a product’s
supply elasticity is different than the
determinants for demand elasticity.
20. Supply Elasticity
Supply elasticity is a measure of the way in which
quantity supplied responds to a change in price.
Elastic supply—a small change in price results in a
relatively larger change in quantity supplied
Inelastic supply—a small change in price results in a
proportionally smaller change in quantity supplied
Unit Elastic—a change in price results in a
proportionally equal change in Qs
21. Elastic Supply
Occurs when price changes are met with
proportionally larger changes in Qs
The price changes, and the producer
responds by increasing production.
The producer has the capability and capacity
to increase production, there are no (or few)
limits on how much they can produce.
22. Elastic Supply
More horizontal
Price changes, and Qs responds even more
23. Inelastic Supply
Occurs when changes in price is met with a
proportionally smaller change in Qs
Even if the producer wanted to increase or
decrease Qs, they can’t.
There must be some sort of technical or
natural constraint that will not allow
producers increase production.
24. Inelastic Supply
More vertical
Producers do not have much control over Qs,
even if prices change
25. Determinants of Supply Elasticity
The nature of its production is the only
determinant to supply elasticity.
If a firm can adjust to new prices quickly,
then supply is likely to be elastic.
If the nature of production is such that
adjustments take longer, then supply is likely
to be inelastic.