supply warm up: what is a good you can least do without? how much do you pay now, and how much would...

Supply

Warm Up:Warm Up:What is a good you can LEAST do without? How much do you pay now, and how much would you be willing to pay for it before you stop using it? Explain whether this item is elastic or inelastic for you.

Nature of Supply

Supply—is the quantity of goods and services that producers are willing to offer at various prices during a given time period.

The Quantity Supplied—is the amount of a good or service that a producer is willing to sell at each particular price.

Price

Quantity

1

2

3

1 2 3

4

4

Quantity

Supplied

As Pric

e incre

ases Q

S

increase

s

Price

Quantity

1

2

3

1 2 3

4

4

Quantity

Supplied

As Pric

e dec

reases

QS decrea

ses

The Law of Supply

Law of Supply—States that producers supply more goods when they can sell them at higher prices and fewer goods when they must sell them at lower prices. Ex. MP3 players at $300 vs. $200Profit—The amount of money remaining

after producers have paid for all their costs.

Supply is a schedule which shows the amounts of a product a producer is willing and able to produce and make available for sale at each price in a series of prices

Supply Schedule

Price in $Quantity Supplied

5 7

4 5

3 2

2 1

1 0

Law of Supply

Market Supply Curve

Pri

ce

(in

do

lla

rs)

Output (slices per day)

3.00

2.50

2.00

1.50

1.00

.50

0

0 500 1000 1500 2000 2500 3000 3500

Supply

Production Costs

Fixed Cost – cost that does not change, no matter how much of a good is produced include rent, buildings, machinery, etc.

Variable Cost – a cost that rises or falls depending on how much is produced include wages, utilities, materials used in

production, etc

Production Costs

Total Cost = fixed costs + variable costsMarginal Cost – cost of producing one

more unit of goodProduction Costs

Total revenue

Profit(total revenue –

total cost)

Marginal revenue

(market price)

Marginal cost

Total cost (fixed cost +

variable cost)

Variable cost

Fixed cost

Beanbags (per hour)

$ –36

–20

0

21

40

0

1

2

3

4

$0

24

48

72

96

$24

24

24

24

24

—

$8

4

3

5

$36

44

48

51

56

$0

8

12

15

20

$36

36

36

36

3657

72

84

93

5

6

7

8

120

144

168

192

24

24

24

24

7

9

12

15

63

72

84

99

27

36

48

63

36

36

36

36

98

98

92

79

216

240

264

288

24

24

24

24

19

24

30

37

36

36

36

36

9

10

11

12

82

106

136

173

118

142

172

209

Total Cost = fixed costs + variable costsMarginal Cost – cost of producing one

more unit of goodProduction Costs

Total revenue

Profit(total revenue –

total cost)

Marginal revenue

(market price)

Marginal cost

Total cost (fixed cost +

variable cost)

Variable cost

Fixed cost

Beanbags (per hour)

$ –36

–20

0

21

40

0

1

2

3

4

$0

24

48

72

96

$24

24

24

24

24

—

$8

4

3

5

$36

44

48

51

56

$0

8

12

15

20

$36

36

36

36

3657

72

84

93

5

6

7

8

120

144

168

192

24

24

24

24

7

9

12

15

63

72

84

99

27

36

48

63

36

36

36

36

98

98

92

79

216

240

264

288

24

24

24

24

19

24

30

37

36

36

36

36

9

10

11

12

82

106

136

173

118

142

172

209

Elastic Supply

Products with elastic supply can be:1. Made quickly2. Inexpensively3. Use a few readily available resources Sports teams apparel—tee

shirts,hats Ex. Super Bowl championship

Demand soars, prices rise, supply increases.

Inelastic Supply

Inelastic supply—exists when a change in a goods price has little impact on the quantity supplied.

Inelastic supply if production requires:1. Time

2. Money

3. Resources not readily available

Ex. Gold, fine art, space shuttles, etc.

Inelastic Supply

Perfect inelastic supply exists when producers, regardless of price, cannot increase the quantity supplied.Ex. Ocean front lots10 lots to sell—regardless of priceCan charge more $ but cannot produce

more ocean front lots.

Changes in Supply that shifts the curve include… Resource prices (Cost of production)- wages

If costs rise supply decreases and vice versa Changes in technology

New technology increases efficiency and production Changes in taxes and subsidies

Firms do not make money off taxes and is a disincentive to produce Subsidies encourage suppliers to produce more and enter the market

Prices of related goods If a company sees higher prices for a related good they produce that

good Pepsi and Aquafina- If water prices increase Pepsi will start bottling

more water Price expectations

If the price rises in the future suppliers will produce less now The number of sellers in the market

More suppliers pushes the supply curve out

Not Price

Shift to the “Right”

Shift to the “Left”