2. Supply
2
♦ Supply (S) = the willingness and ability to sell a good
or service
You want to go into business but are not ready. Are you
part of supply?
No. You must be able to supply a product.
You are able to produce a product, but you don’t want
to. Are you part of supply?
No. You must be willing
to supply a product.
Please sell me
your hat!
I already told
you, I don’t
want to sell it.
3. Law of Supply
3
As the price (P) of a good increases, the quantity
supplied (Qs) of the good increases.
AND
As the price (P) of a good decreases, the quantity
supplied (Qs) of the good decreases.
If P then Qs
If P then Qs
NOTE: The Law of Supply shows that quantity
supplied moves in the direction as price.same
4. Difference Between Supply
and Quantity Supplied
4
♦ Quantity Supplied (Qs) = number of units of a good
produced and offered for sale at a specific price.
Quantity supplied is always a number.
BUT
♦ Supply (S) = willingness and ability of sellers to produce
and offer to sell a good or service.
For
Sale
For
Sale
For
Sale
5. Supply Schedule
5
♦ Supply Schedule = a chart showing the quantity
supplied at each price level
$1 10
$2 20
$3 30
$4 40
Price
(dollars)
Quantity
supplied
(units)
$1 10
$4 40
At $1, what is the Quantity
Supplied?
10 units
At $4, what is the Quantity
Supplied?
40 units
Is this Supply Schedule an
example of the Law of Supply?
Yes
If P then Qs
If P then Qs
6. Supply Curve
6
$1 10
$2 20
$3 30
$4 40
Price
(dollars)
Quantity
supplied
(units)
4
3
2
1
0
Price(dollars)
Quantity supplied
(units)
10 20 30 40
Supply Curve
A
B
C
D
A Supply Schedule can be made into a graph.
Both the Supply Curve and Supply
Schedule show the Quantity
Supplied at each price level.
$1 10
$2 20
$3 30
$4 40
7. Supply Has a Direct Relationship to Price 7
Supply Curves have a direct relationship to price.
4
3
2
1
0
Price(dollars)
Quantity supplied
(units)
10 20 30 40
Supply Curve
A
B
C
D
If P then Qs
If P then Qs
As price increases, what
happens to the quantity
supplied?
Quantity Supplied increases
As price decreases, what
happens to the quantity
supplied?
Quantity Supplied decreases
Quantity supplied moves in the
same direction as changes in price.
8. Vertical Supply Curve
8
4
3
2
1
0
Price(dollars)
Quantity supplied
(units)
10 20 30 40
Most supply curves
slope upward, but a
few are vertical supply
curves.
Vertical supply curves
represent goods that:
1. cannot be reproduced.
Goods that you cannot produce have vertical supply curves.
Do all supply curves slope upward?
2. you have no resources (time
or ability) to produce
additional units.
or
800
700
600
500
400
300
200
100
0Price(thousandsofdollars)
Quantity of Stradivarius violins
X
Supply
curve of
Stradivarius
violins
500
Number of theater seats
Price(dollars)
50
40
30
20
10
0
Supply curve
of theater
seats for
tonight’s
performance
9. 9
Quick Check
Supply schedule
Supply curve
Upward
Quantity supplied
Chart of supply1
Graph of supply2
If P3
If P4
Direction of
supply curve
5
Quantity supplied
10. 10
Quick Check (continued)
Direct
Vertical supply curve
Upward sloping supply curve
Vertical supply curve
Willing and able to
produce and sell
Relationship of supply
(Qs) to price (P)
6
No time to produce
more
7
Can produce more now8
Cannot produce more9
Law of supply10
11. Price(dollars)
0
$1,000
2,000 4,000 6,000
Quantity supplied of computers
Shifts in Supply Curves
11
S3 S2S1
Original supply
curve
C BA
Supply can change
or shift.
Supply increases → Supply curve shifts rightSupply increases → Supply curve shifts right
What has happened
to supply?
Shift right =
Supply increased
What has happened
to supply?
Shift left =
Supply decreased
Supply decreases → Supply curve shifts left
12. 12
What Causes Supply to Shift?
Changes in
♦ Number of sellers
♦Technology
♦Taxes
♦ Subsidies
♦ Quotas
♦ Weather (in some cases)
♦ Resource prices
13. 13
Resource Prices
Resource prices = costs of land, labor, capital,
and entrepreneurship
Price(dollars)
0
Quantity supplied
S2 S3S1
Original supply
curve
B CA
Resource prices increase =
Shift left
Resource prices decrease =
Shift right
14. 14
Technology
Technology = the body of skills and knowledge relevant
to the use of resources in production
Advancement in technology = the ability to produce
more output with a fixed amount of resources
Bushels
per acre
Chairs
per hour
Advancement in technology can lower unit costs.
15. 15
Price(dollars)
0
Quantity supplied
S3 S2S1
Original supply
curve
B
Per-unit cost = average cost
AC
Per-unit cost decline =
Shift right
Per-unit cost increase =
Shift left
Technology (continued)
Changes in unit costs shift supply curves.
16. 16
Taxes
Taxes = extra costs of doing business that increase or
decrease per-unit costs
Decrease taxes =
shift right
Increase taxes =
shift left
Price(dollars)
0
Quantity supplied
S3 S2S1
Original supply
curve
BAC
17. Price(dollars)
0
Quantity supplied
17
Subsidies
Subsidies = financial payment made by government to
producers for certain actions
S3 S2S1
Original supply
curve
BAC
Subsidies increase =
shift right
Subsidies decrease =
shift left
Subsidies have the opposite effect of taxes since they lower
per-unit costs.
18. Price(dollars)
0
Quantity supplied
18
Quotas
Quotas = restrictions on the number of units of a foreign-
produced good (import) that can enter a country
S3 S2S1
Original supply
curve
BAC
Quotas increase =
fewer units are allowed,
shift left
Quotas decrease =
more units are allowed,
shift right
19. Price(dollars)
0
Quantity supplied
19
Number of Sellers
Sellers enter or leave a market because of profits.
S3 S2S1
Original supply
curve
BAC
More profits =
more sellers =
shift right
Fewer profits =
fewer sellers =
shift left
Profits drive sellers to enter or leave markets.
21. 21
Quantity supplied
Price
0
Change in Supply or a Change in
Quantity Supplied
♦ Change in supply = shift in supply curve
♦ Change in quantity supplied = movement from one
point to another along the same curve
S2S1
Quantity supplied
Price
0
S1
A
B
22. 22
If you only change price,
what changes?
Quantity supplied
SupplyIf you change a shift factor,
what changes?
What are the supply
shift factors?
Changes in resource prices,
technology, taxes, subsidies, quotas,
number of sellers, and weather.
If you only change the price,
does the supply shift? No. It is a change in quantity supplied.
Quantity supplied
Price
0
S1
A
B
Quantity supplied
Price
0
S1
S2
S3
C
23. 23
Elasticity of Supply
Elasticity of supply shows the relationship between the
percentage change in quantity supplied (Qs) and the
percentage change in price (P).
♦ Elasticity of Supply =
Percentage change in quantity supplied
Percentage change in price
24. 24
Elastic Supply
♦ Elastic Supply = percentage change in quantity supplied
is greater than the percentage change in price
If quantity supplied (Qs) 15% and price (P) 10%
15
10
= 1.5 greater than 1 = Elastic supply
♦ Inelastic Supply = percentage change in quantity
supplied is less than the percentage change in price
If quantity supplied (Qs) 5% and price (P) 10%
5
10
= .5 less than 1 = Inelastic supply
25. 25
Elastic Supply (continued)
♦ Unit elastic supply = percentage change in quantity
supplied is the same as the percentage change in price
If quantity supplied (Qs) 10% and price (P) 10%
10
10
= 1 = Unit-elastic supply
10
10
= 1 = Unit-
elastic supply
Remember
26. 26
Quick Check
Shift left
Shift left
Shift right
Shift left
Better training5
If Then
Taxes1
Energy prices2
Subsidy4
Labor rates3 Shift right
Shift right
Wages6
27. 27
Quick Check (continued)
Shift right
Shift right
Shift right
Shift left
Sellers11
Weather bad12
If Then
Quotas7
Taxes8
Shift left
Price of item10
Price of item9 Quantity supplied decreases
Quantity supplied increases
Less educated workers13
28. 28
Quick Check (continued)
Shift left
Shift left
Unit-elastic supply
% change in Qs the same
as % change in P
18
If Then
Quotas14
Sellers15
% change in Qs greater
than % change in P
17
Raw material price16 Shift left
Elastic supply
End of
Chapter 4
End of
Chapter 4Inelastic supply
% change in Qs less than
% change in P
19
