The document discusses supply and the law of supply. It defines supply as the willingness and ability of sellers to produce and offer different quantities of a good at different prices. The law of supply states that quantity supplied increases as price increases, and decreases as price decreases, resulting in a direct relationship between price and quantity supplied. Supply can be illustrated using supply schedules and supply curves, with the curve shifting right when supply increases and left when supply decreases. Factors that cause supply curves to shift include resource prices, technology, taxes, subsidies, quotas, number of sellers, expectations, and weather.

1. Unit 2: The Elements of a
Market Economy
Supply
Essential Question: How do suppliers decide what
goods and services to offer?

2. What Is Supply?
● Supply is the willingness and ability of sellers to
produce and offer to sell different quantities of a
good at different prices during a specific time
period.
● Quantity supplied is the number of units of a
good produced and offered for sale at a specific
price.

3. What Does the Law of Supply Say?
● The law of supply states that as the price of a good
increases, the quantity supplied of the good increases, and as
the price of a good decreases, the quantity supplied of the
good decreases.
● Price and quantity supplied move in the same direction,
giving them a direct relationship. As one factor rises,
the other rises, too.
● As with the law of demand, we can use a table or a graph to
show how the law of supply works.
o A supply schedule is a numerical chart that illustrates the law of
supply.
o A supply curve is a graph that shows the amount of a good that
sellers are willing and able to sell at various prices.

4. o Sometimes the quantity of a good that is available
cannot change, regardless of price. When this happens,
we get a vertical supply curve. An example is the
number of seats for a sporting event taking place this
evening. An increase in the price will not increase the
amount of seats available, because there is not enough
time to construct more seats.

5. TRANSPARENCY 5-1: Supply in Tables and Graphs
Supply schedule Supply curve Supply curve when there is
no time to produce more

6. A Firm’s Supply Curve vs. a Market Supply Curve
● A firm’s supply curve is a supply curve for that
particular firm.
● A market supply curve is the sum of all firms’
supply curves.

7. Homework:
Find a real-life example (article)of the Law of
Supply! Write 1 paragraph summarizing the
example and how it relates to the Law of
Supply.
At least one quote from the article demonstrating
Law of Supply.

8. Supply Curve Shifts

9. When Supply Changes, the Curve Shifts
oSupply can go up or down. These changes in
supply will create a shift in the supply curve.
● As supply increases, the supply curve shifts to the
right.
● As supply decreases, the supply curve shifts to the
left.

10. TRANSPARENCY 5-3: Shifts in a Supply Curve
oWhen supply
increases, the supply
curve moves to the
right, from S1 to S2.
oWhen supply
decreases, the supply
curve moves to the
left, from S1 to S3.

11. Figure 7 Shifts in the Supply Curve
Copyright©2003 Southwestern/Thomson Learning
Price of
Ice-Cream
Cone
Quantity of
Ice-Cream Cones
0
Increas
ein supply
Decreas
ein supply
Supply curve, S3
curve,
Supply
S1
Supply
curve, S2

12. Eight Factors that Cause Supply Curves to Shift
1. The prices of resources influence the supply of a good.
When resource prices fall, sellers are willing and able to
produce more of the good and offer it for sale.
2. Technology also causes a shift in the supply curve.
o Technology is the body of skills and knowledge concerning the
use of resources in production.
o An advancement in technology is the ability to produce more
output with a fixed amount of resources.
o An advancement in technology can help lower the per-unit cost,
which is the average cost of producing the good.

13. What Factors Cause Supply Curves to Shift?
3. Taxes on production can increase the per-unit costs of
producing a good. Taxes cause the supply curve to shift to
the left.
4. Subsidies are financial payments made by the government
for certain actions. Subsidies can increase production,
causing the supply curve to shift to the right.
5. Quotas are restrictions on the number of units of a foreign-
produced good, or import, that can enter a country. A quota
decreases supply, shifting the supply curve to the left.

14. What Factors Cause Supply Curves to Shift?
6. The number of sellers can also impact the supply curve. If
more sellers begin producing a good, supply increases,
shifting the supply curve to the right.
7. Expectations of future price movements can cause sellers
to either increase or decrease the current supply.
8. Weather can also affect the supply of a good. Think of the
effect that weather can have on the supply of agricultural
goods such as corn and wheat.

15. What Factor Causes a Change in Quantity Supplied?
● Price is the only factor that will change the
quantity supplied of a good.

16. 1 5
Price of Ice-
Cream
Cone
Quantity of
Ice-Cream
Cones0
S
1.00
A
C
$3.00
A rise in the price
of ice cream
cones results in a
movement along
the supply curve.
Change in Quantity Supplied

17. ACDC Supply

18. Elasticity of Supply

19. Elasticity
oSimilar to elasticity of demand, elasticity of supply
is the relationship between the percentage change in
quantity supplied and the percentage change in price.
● Elastic supply exists when the percentage change in
quantity supplied is greater than the percentage change in
price.
● Inelastic supply exists when the percentage change in
quantity supplied is less than the percentage change in
price.
● Unit-elastic supply exists when the percentage change
in quantity supplied is the same as the percentage change
in price.