I can explain the law of supply and analyze changes in supply in response to price and determinants.

Transcription

1 I can explain the law of supply and analyze changes in supply in response to price and determinants. Success Criteria: Identify determinants of supply and accurately graph changes in supply.

2 Basics of Supply

3 An Introduction to Supply Supply: schedule of quantities that would be offered for sale at all possible prices that could prevail in the market Everyone who offers an economic product for sale is a supplier All suppliers must make a similar decision Supply curve: graphical representation of the quantities produced at each and every possible price in the market Law of Supply: rule stating that more will be offered for sale at high prices than at lower prices

4 Change in Quantity Supplied Quantity supplied: amount offered for sale at a given price; point on the supply curve Change in quantity supplied: change in amount offered for sale in response to a price change; movement along the supply curve Producers generally react to changing prices in just this way

5 The Basics of Supply Like demand, the word supply has a specific meaning in economics. Supply refers to the willingness and ability of sellers to produce a good or service Willingness: a person wants or desires to produce and sell the good Ability: a person is capable of producing and selling the good

6 The Law of Supply The law of supply: quantity supplied varies positively (or directly) with price, other things constant. Price = quantity supplied Price = quantity supplied

7 Why are price and quantity supplied positively (directly) related? According to economists it is because of the Profit motive. Producers are more willing and able to supply more goods at higher prices than at low prices because a higher price makes production more profitable Profit = Total Revenue Total Cost

8 How We Look at Supply -- The Supply Schedule and Curve A schedule is a table that lists the quantity of a good that a producer is willing to make at each price. This is the STORY. The vertical axis ALWAYS shows price The horizontal axis ALWAYS shows quantity supplied Plot the points on the schedule Connect the dots!! The Supply curve slopes UP. Now you have created a PICTURE OF THE STORY. P S Q

9 Movement Along a Supply Curve A change in the price is a change in the quantity provided, other things constant. This causes a movement along a supply curve.

10 Price Change in Quantity Supplied Quantity

11 On to Determinants of Supply Change in Quantity Supplied = Change in Price = Movement Along the Curve Change in Supply = Change in Something Else = Shift of the Curve

12 Change in Supply Change in supply: different amounts offered for sale at each and every possible price in the market; shift of the supply curve Cost of inputs Productivity Technology Number of sellers Taxes and subsidies Subsidies: government payments to individuals, businesses, or other groups to encourage or protect a certain type of economic activity Expectations Government regulation

13 DETERMINANTS OF SUPPLY Factors That Can Shift the Supply Curve: Changes in... The cost of resources used to make the good Technology used to make the good Producers price expectations Producers expectations of the costs of resources The number of sellers in the market (competition)

14 Practice Problem #1 What would happen to the supply of pizza if more businesses enter the pizza market? Determinant? Increase or decrease in supply?

15 Answer to Practice Problem #1 What would happen to the supply of pizza if more businesses enter the pizza market? Determinant more sellers in the marketplace (competition) Increase in supply

16 Practice Problem #2 What would happen to the supply of Nike shoes if there is an increase in the cost of rubber? Determinant? Increase or decrease in supply?

17 Answer to Practice Problem #2 What would happen to the supply of Nike shoes if there is an increase in the cost of rubber? Determinant The cost of resources used to make the good Decrease in supply

18 Practice Problem #3 A new technology is invented that allows factories to produce energy drinks more efficiently. Determinant? Increase or decrease in supply?

19 Answer to Practice Problem #3 A new technology is invented that allows factories to produce energy drinks more efficiently. Determinant Improved technology used to make the good Increase in supply

20 Practice Problem # 4 A company that makes video games pays their workers the minimum wage. The government passes a law that increases the minimum wage businesses can pay workers. Determinant? Increase or decrease in supply?

21 Practice Problem # 4 A company that makes video games pays their workers the minimum wage. The government passes a law that increases the minimum wage businesses can pay workers. Determinant the cost of resources to make the goods Decrease in supply of video games

22 Practice Problem # 5 A computer company finds out a competitor is planning to sell a new and improved type of computer. Determinant? Increase or decrease in supply?

23 Answer to Practice Problem # 5 A computer company finds out a competitor is planning to sell a new and improved type of computer. Determinant technology or producers price expectations Increase in supply now because competition will likely lower prices later

24 Movement Along a Supply Curve Versus a Shift of the Curve Remember there is a difference between quantity supplied (Qs) and supply (S). Markets never stand still, there are always outside factors that change the actual price of the good or how much is supplied altogether. A change in price creates a change in the quantity supplied (Qs), other things constant. This causes a movement along the supply curve. A change in one of the determinants of supply causes a change in supply (S). This causes in a shift of the supply curve.

25 Determinants of increased supply change the story.. How so? Original Story Quantity supplied of pizza per week (by millions) Price of pizza New Story Quantity supplied of pizza per week (by millions) Price of pizza 15 $ $ $ $ $ $ $ $ $ $ $ $0.00

26 How would determinants of increased supply change the picture of supply? $15 12 S1 Price per pizza Millions of pizzas per week

27 How would determinants of increased supply change the picture of supply? $15 12 S1 S2 Price per pizza Millions of pizzas per week

28 Supply Elasticity: responsiveness of quantity supplied to a change in price Elastic: change in price causes a relatively large change in quantity supplied (more than proportional)

29 Inelastic: change in price causes a relatively smaller change in quantity supplied (less than proportional)

30 I can explain the law of supply and analyze changes in supply in response to price and determinants. Success Criteria: Identify determinants of supply and accurately graph changes in supply.