SupplySupply

We’ll add in We’ll add in Demand later.Demand later.

Excited?Excited? I can tell.I can tell. It’s just like Demand It’s just like Demand

only different.only different. Trust meTrust me Still boring though.*Still boring though.*

Section 2

Section 1 VocabularySection 1 Vocabulary SupplySupply Law of Supply supply schedule supply curve market supply curve quantity supplied change in quantity supplied change in supply subsidy supply elasticity Equilibrium Price floor Price ceiling**

Work like the vocabulary dogs you are!

The Law of SupplyThe Law of Supply

The Law of Supply tells us that firms will produce and offer for sale more of their product at a high price than at a low price.

Think of how much work you would perform at $50 an hour. **

Why can’t you guys be like this?

What is Supply?What is Supply?

The amount of a The amount of a product that would product that would be offered for sale be offered for sale at all possible at all possible prices in the prices in the market.market.

Everyone who Everyone who offers an economic offers an economic product for sale is product for sale is a supplier. *a supplier. *

This is just for show

Supply Schedule and Supply Schedule and Supply CurveSupply Curve

Just like demand.Just like demand. An individual supply curve

illustrates how the quantity that a producer will make varies depending on the price that will prevail in the market.

A market supply curve illustrates the quantities and prices that all producers will offer in the market for any given product or service. **

Figure 5.1Figure 5.1

Look! CD’s again! *Look! CD’s again! *Figure 5.2Figure 5.2

Unlike Demand…. Unlike Demand….

Supply curves Supply curves always slope UP always slope UP and to the right. and to the right. **

Insert generic supply curve here.

Just like DemandJust like Demand Change in quantity suppliedChange in quantity supplied

is simply movement along is simply movement along the supply curve.the supply curve.

A change in quantity supplied is the change in amount offered for sale in response to a change in price.

• Producers have the freedom, if prices fall too low, to slow or stop production or leave the market completely. If the price rises, the producer can step up production levels. **

And again, just like And again, just like demand…demand… A A Change in Change in

Supply Supply is is when suppliers offer different amounts of products for sale at all possible prices in the market.

It’s a shifting of It’s a shifting of the curve. *the curve. *

So what can cause a So what can cause a shift?shift?

• Factors that can cause a change in supply include:

• cost of inputs (-)

• productivity levels

• Technology – usually increases production

• Number of sellers

• Taxes (-) or the level of subsidies (+)

• Expectations for the future and government regulations. **

Figure 5.3Figure 5.3

Quiz Time!Quiz Time!

Supply ElasticitySupply Elasticity

Who cares? Who cares? This is inane.This is inane.

Let’s cut our losses Let’s cut our losses and go straight and go straight to the stuff you to the stuff you need to know for need to know for the EOCT. *the EOCT. *

Even Presidents get bored.

Supply & DemandSupply & Demand

The quick, down The quick, down & dirty version. *& dirty version. *

Splice ‘em together.Splice ‘em together. Demand = DDemand = D Supply = SSupply = S Equilibrium = 30 videos Equilibrium = 30 videos

demanded at $3 a rental.demanded at $3 a rental. Equilibrium means every Equilibrium means every

consumer who wishes to consumer who wishes to purchase the product at purchase the product at the market price is able the market price is able to do so, and the supplier to do so, and the supplier is not left with any is not left with any unwanted inventory. *unwanted inventory. *

EquilibriumEquilibrium This is good because it This is good because it

allows producers to allows producers to determine how many to determine how many to make and what price to make and what price to charge.charge.

This allows them to run This allows them to run an efficient operation.an efficient operation.

Surplus = producing too Surplus = producing too many itemsmany items

Shortage = Not Shortage = Not producing enough. *producing enough. *

And after a big shift?And after a big shift?

Light a match.Light a match.

Notice how the Notice how the equilibrium also shifts.equilibrium also shifts.

Notice how the shift in Notice how the shift in demand caused more demand caused more to be produced.to be produced.

See how it all ties See how it all ties together? *together? *

Supply ShiftSupply Shift Notice the new Notice the new

equilibrium.equilibrium. Since supplies Since supplies

decreased the price decreased the price increased.increased.

Production decreases Production decreases to maintain efficiency.to maintain efficiency.

It’s that old “Invisible It’s that old “Invisible Hand” of Adam Smith Hand” of Adam Smith kicking in.kicking in.

Markets tend to Markets tend to naturally move toward naturally move toward equilibrium. *equilibrium. *

Cat: The other white meat.