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Unit 2: Supply, Demand, and Consumer Choice
Can you see me?
1
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Supply
2
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Supply DefinedWhat is supply?Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices.
What is the Law of Supply?There is a DIRECT (or positive) relationship between price and quantity supplied.•As price increases, the quantity producers make increases•As price falls, the quantity producers make falls.
Why? Because, at higher prices profit seeking firms have an incentive to produce more.
EXAMPLE: Mowing Lawns3
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Example of SupplyYou own an lawn mower and you are
willing to mow lawns. How many lawns will you mow at these prices?
Price per lawn mowed
Quantity
SuppliedSupply Schedule
4
$1$5
$20$50
$100$1000
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GRAPHING SUPPLY
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
Draw this large in your notes
5
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
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GRAPHING SUPPLY
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
6
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
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GRAPHING SUPPLY
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
7
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
What if new
companies start making
cereal?
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
8
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
9
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
10
PriceQuantity
Supplied
$5 50 70
$4 40 60
$3 30 50
$2 20 40
$1 10 30
Supply
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
11
SupplyS2
PriceQuantity
Supplied
$5 50 70
$4 40 60
$3 30 50
$2 20 40
$1 10 30
Increase in SupplyPrices didn’t change but
there is MORE cereal produced
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
12
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
What if a drought
destroys corn and wheat
crops?
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
13
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
14
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
15
PriceQuantity
Supplied
$5 50 30
$4 40 20
$3 30 10
$2 20 1
$1 10 0
Supply
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
16
SupplyS2
PriceQuantity
Supplied
$5 50 30
$4 40 20
$3 30 10
$2 20 1
$1 10 0
Decrease in SupplyPrices didn’t change but
there is LESS cereal produced
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Change in Supply
Qo
$5
4
3
2
1
Price of Cereal
Quantity of Cereal
Supply Schedule
10 20 30 40 50 60 70 80
17
PriceQuantity
Supplied
$5 50
$4 40
$3 30
$2 20
$1 10
Supply
What if cereal companies
find a quicker way to make
cereal ?
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6 Determinants (SHIFTERS) of Supply1. Prices/Availability of inputs (resources)2. Number of Sellers3. Technology4. Government Action: Taxes & Subsidies
5. Opportunity Cost of Alternative Production
6. Expectations of Future ProfitChanges in PRICE don’t shift the curve. It only
causes movement along the curve. 18
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Supply PracticeFirst, identify the determinant (shifter) then
decide if supply will increase or decrease
19
ShifterIncrease or Decrease
Left or Right
1
2
3
4
5
6
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Supply Practice
Hamburgers1. Mad cow disease kills 20% of cows 2. Price of burgers increase 30%3. Government taxes burger producers4. Restaurants can produce burgers and/or tacos. A demand
increase causes the price for tacos to increase 500%5. New bun baking technology cuts production time in half6. Minimum wage increases to $10
1. Which determinant (SHIFTER)?2. Increase or decrease?3. Which direction will curve shift?
20