Law of supply

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

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

Elastic or Inelastic?

Elastic or Inelastic?

Elastic or Inelastic?

Elastic or Inelastic?

Elastic or Inelastic?

Graph subway workers on board

• Jumping jacks market

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 Qs and P Qs

The supply curve is always

upward sloping

$

Q

S

For example….• Average prices of • Therefore…..

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

Producer Surplus• Difference between cost and sale price• IOW: profit

• Sale: $15• Cost: $10• PS = $5

For example….

In your groups

• Choose either a computer company or a car company

• Your boss wants your group to figure out how to produce MORE of your goods per year

• Consider every factor of production (land, labor, capital)

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 of future price• 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

PEST Changes Assignment• For each part of PEST, identify one positive

and negative change to the car or computer market and sketch a correctly drawn graph

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

1 change to Demand (TRIBE)

• Choose 1 market• Xbox360s, pizza, Gatorade, hotel rooms

1 change to Supply (PEST)