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Understanding Supply

In this lesson, students will identify characteristics of the Law of Supply.

Students will be able to identify and/or define the following terms:

Law of Supply

Supply Curve

Elasticity of Supply

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Look carefully at this graph. How does price influence supply?

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Law of Supply

• The Law of Supply is the tendency of suppliers to offer more of a good at higher prices.

• Sellers love high prices.

• The Law of Supply is the opposite of the Law of Demand.

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Look carefully at the curves.Do you notice that they move in

different directions? Why?

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Why do suppliers love high prices?

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Why is the Law of Supply True?

• Supply increases as price rises because either existing firms will produce more to make greater profits…

• Or new firms will enter the market to take advantage of the high prices.

• Sellers love to make profits.

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It’s hard to find vinyl records anymore.Suppliers prefer selling Compact Discs.Suppliers go where the higher prices are.

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Suppliers don’t sell Disco anymore.There just isn’t any money in it.

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A Supply Curve

• A supply curve is a graphic representation showing the tendency of suppliers to supply more at higher prices.

• A supply curve will always rise left to right.

• Suppliers supply more at higher prices.

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Notice how the supply curve risesleft to right.

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Supply moves in the direction of price.

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Elasticity of Supply

• Like Demand, Supply can be elastic or inelastic.

• In general, supply tends to be initially inelastic because it takes time to increase supply.

• However, some goods are more elastic than others.

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Apples tend towards inelastic supply.It takes time to grow apples.

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The supply of haircuts can be increasedmore easily.

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Questions for Reflection:

• Define the Law of Supply.

• How does the Law of Supply differ from the Law of Demand?

• List two goods with inelastic supply.

• List two goods with elastic supply.

• Why does supply increase as price increase?

• Why does it take time to increase supply?