supply. law of supply changes in price will affect how many products a business will produce...

Supply

•Law of Supply• Changes in price will affect how many products a business will produce

•Producers: providers of a good or service

•As price increases, supply increases.

SUPPLY = UP

– Profit Motive (#1 motive of businesses)• Higher prices mean higher profits for

suppliers – If prices are low it is not as productive for them

to sell, so supply goes down

REMEMBER TO THINK THROUGH THE EYES OF THE PRODUCER!!!

• Factors Affecting Supply1. Cost of Production

• If the cost of production goes down, the supply will go up because you can produce more for your money

• Reminder! 4 factors of Production??– Capital– Land– Labor– Management

2. Technology: the methods used to make goods and services• New technology can speed up production

3. Productivity• When workers are more productive, a

company’s costs go down, supply goes up• If productivity goes up, supply goes up

4. Government Policies• Tighter government regulations restrict/limit

supply– ie. FDA

• Relaxed regulations lower the cost of production

– ie. Minimum wage (currently $7.25)

• Higher taxes = Higher cost• Subsidies lower (offset) costs

– Subsidy: government payment to an individual, business, or group for certain actions

– ie. Hybrid cars

5. Number of Producers/Suppliers• The larger the number of suppliers, the greater the

market supply

6. Producer Expectations• If businesses believe that consumer demand will not

be very high in the near future, they will produce less

Shifts in Supply

• Remember!! Rise = Right and Less = Left

1. A company ½ of their workers and the remaining ones have too much work. Show the change in supply for that business.

2. A company finds a new way to conserve water and saves on their utility bill. Show the shift in supply for that business.

3. A new machine can do the work of 100 people. Show the change in supply.

4. Two shoe stores close in a mall. Show the change in supply of shoes in that mall.

5. The government raises the tax on paper. Show the change in supply of spiral notebooks.

6. Apple expects the new I-pod to be very popular in the next year. Show the change in supply of new I-pods.

7. The government offers a subsidy to any company that makes solar panels. Show the change in supply of solar panels.

8. A company raises the pay of their workers. Show the change in supply for this company.

Supply and Demand

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Q

Equilibrium: What the market price will be

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16

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2

Equilibrium is where supply and demand meet. YAY!!

• Shortage: when demand is greater than supply

–Prices will rise

–ie. Gas shortages

• Surplus: when supply is greater than demand

–Prices will fall

–ie. Clearance rack

The Full Graph

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50

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35

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25

20

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10

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