03 law of supply

What is the minimum, per hour I would have to pay you to work at Subway?

MANKIWCHAPTER 4 ALL WEEK

Pretend there is no minimum wage and you could work for less than $7.50

Law of Supply

• As the price of a good increases, producers will produce more (,or try to) quantity. As the price of the good decreases, producers will produce less quantity.

P Q and P Q

The supply curve is always

upward sloping

$

Q

S

Graph one:

A Supply Curve

Price ofWidgets

Number of WidgetsSellers Want to

Sell

$1.00 10

$2.00 40

$3.00 70

$4.00 140

For example….• Average prices of

• Therefore…..

For example….

Producer Surplus• Difference between cost and sale price

• IOW: profit

• Sale: $15

• Cost: $10

• PS = $5

If price changes Q*supply,What changes supply?

4 Determinants of Supply

• Price of production + or -• Taxes, regulation, raw

materials, labor

4 Determinants of Supply

• Expectations

• If future P$ might rise, hold inventory

• If future P$ might fall, increase supply

4 Determinants of Supply

• Sellers (increase or decrease)

4 Determinants of Supply

• Technology

4 Determinants of SupplyMnemonic

• Price of Production

• Expectations

• Sellers (#)

• Technology

• PEST = supply determinants

• TRIBE = demand determinants

Diff between supply and DemandXbox games

• Supply or demand change?

• Determinant

Diff between supply and DemandWheat

• Supply or demand change?

• Determinant

locusts

Diff between supply and DemandNew cars

• Supply or demand change?

• Determinant

Diff between supply and DemandUsed clothing

• Supply or demand change?

• Determinant

Diff between supply and DemandDog food

• Supply or demand change?

• Determinant

Diff between supply and DemandDog food

• Supply or demand change?

• Determinant

Diff between supply and DemandSalsa

• Supply or demand change?

• Determinant

Diff between supply and DemandSalsa

• Supply or demand change?

• Determinant

CLOSED

Diff between supply and Demand Salsa

• Supply or demand change?

• Determinant

Diff between supply and DemandInsurance plans

• Supply or demand change?

• Determinant

TRIBE

Assignment due next Thurs or Fri

For each part of the:

Formulate two scenarios and graph For example:Beef marketConsumers see news story about mad cow disease