With demand, With demand, you were the consumer!you were the consumer!

With supply, With supply, you are the producer…you are the producer…the entrepreneur…the entrepreneur…the business owner…the business owner…

You are trying to make a PROFIT!!!You are trying to make a PROFIT!!!

Supply!Supply!How much should a producer How much should a producer

supply on the shelves of a store?supply on the shelves of a store?21-321-3

In the last chapter, we In the last chapter, we learned that learned that demanddemand sets sets prices!prices! For example, if a popular pair of shoes For example, if a popular pair of shoes

has just gone on the market… has just gone on the market… and demand is high…and demand is high…

Producers will set the price HIGH! Why?Producers will set the price HIGH! Why? Because the producer wants to make a Because the producer wants to make a

lot of $$$ off your demand!lot of $$$ off your demand!

#1 #1 Supply is . . .Supply is . . .

Various quantities of Various quantities of a good/service a good/service producers are willing producers are willing to sell at various to sell at various pricesprices

Look at p.582Look at p.582

$20

$40

#2#2 Supply is the Supply is the opposite opposite of of

demand. demand. When we learned about When we learned about

demand…demand…

buyers/consumers demanded buyers/consumers demanded different different quantitiesquantities

of a good depending on the of a good depending on the priceprice

that sellers ask. that sellers ask.

#3#3 With supply, suppliers/producers

offer different quantities

of a product depending on the

price that buyers

are willing to pay.

(Think about that carefully! Read these 2 answers again slowly.)

#4#4

Remember with demand: Remember with demand:

as prices rise, demand falls. as prices rise, demand falls. as prices fall, demand also rises.as prices fall, demand also rises.

#5#5 With supply, as price rises for a good, the quantity With supply, as price rises for a good, the quantity supplied alsosupplied also rises. rises. (In other words, if people are (In other words, if people are willing to pay a high price, put a lot of goods on the willing to pay a high price, put a lot of goods on the shelf. It means more $$$ for the producer!)shelf. It means more $$$ for the producer!)

Look at supply schedule & supply curve onLook at supply schedule & supply curve on p. 582. p. 582.

As price falls for a good, the quantity supplied alsoAs price falls for a good, the quantity supplied also falls.falls. (This is b/c no one is buying the few that are (This is b/c no one is buying the few that are on the shelf, so the producer puts them on sale.)on the shelf, so the producer puts them on sale.)

#6#6 The Law of Supply The Law of Supply

This principle states thatThis principle states that

suppliers will offer more for sale suppliers will offer more for sale

at a higher price at a higher price

and and

less at a lower price.less at a lower price.

#6 cont’d#6 cont’dThe higher the price of the good, The higher the price of the good,

the greater the incentive the greater the incentive for a producer for a producer

to make more (of the product).to make more (of the product).

Add this to your answer: Add this to your answer: In other words, In other words,

the producer will expect a higher profit the producer will expect a higher profit b/c of the higher price.b/c of the higher price.

Therefore, the incentive Therefore, the incentive that motivates producers isthat motivates producers is

Profit!Profit!

#7a, 7b, 7c#7a, 7b, 7cIndividual Supply for one video game Individual Supply for one video game company called Software Housecompany called Software House

If Software House has If Software House has 100 100 video games video games on the shelf to be sold, they will sell them on the shelf to be sold, they will sell them for for $50.$50.

If Software House has If Software House has 70 70 video games video games on the shelf to be sold, they will sell them on the shelf to be sold, they will sell them for for $30.$30.

If Software House has If Software House has 1 1 video game on video game on the shelf to be sold, they will sell it for the shelf to be sold, they will sell it for $5.$5.

#7e #7e Price x Quantity = Total Price x Quantity = Total RevenueRevenuePricePrice QuantityQuantity RevenueRevenue

$50$50 100100 $5,000$5,000

$40$40 9090 $3,600$3,600

$30$30 7070 $2,100$2,100

$20$20 3030 $600$600

$10$10 1010 $100$100

$5$5 11 $5$5

From the chart, how much $ would you like to earn? To make the most profit, your company would have 100 games on the shelf &

sale them for $50! $5000 in total revenue!

#8 #8 In the supply curve, In the supply curve,

Quantity represents Quantity represents the amount of a good/service a business/producer is the amount of a good/service a business/producer is

willing to supply/produce.willing to supply/produce.

Note: Note: Don’t confuse this w/ the demand. With demand, Don’t confuse this w/ the demand. With demand,

quantityquantity represented how much represented how much YOUYOU were were willing to willing to buybuy. This is supply! Here, quantity is . This is supply! Here, quantity is how much you will how much you will sellsell..

#9 #9 The supply curve slopesThe supply curve slopes

UPUP!!

Remember, the demand curves slopes Remember, the demand curves slopes down.down.

#10#10

This reflects that suppliers are willing to This reflects that suppliers are willing to offer offer more productsmore products at a higher at a higher priceprice and and fewer products at a fewer products at a lower price (because lower price (because they have gone on sale & there aren’t they have gone on sale & there aren’t many left)many left)..

#11 #11

They won’t be able to pay their bills! They won’t be able to pay their bills!

They won’t be able to make a profit in They won’t be able to make a profit in order to make $$$$$!order to make $$$$$!

#12 #12 Profit is defined as . . .Profit is defined as . . .

The amount of money a business The amount of money a business receives above its (fixed & variable) receives above its (fixed & variable) costs!costs!

#13 #13 Producers can use their Producers can use their profit in 3 ways:profit in 3 ways:

a.a. increase the wages of its workers! increase the wages of its workers! (investing in human capital)(investing in human capital)

bb.. purchase other things the company purchase other things the company needs (office equipment, scanners)needs (office equipment, scanners)

c.c. keep the profit for themselves & spend it. keep the profit for themselves & spend it.

#14 #14 Market Supply is defined Market Supply is defined as . . . as . . .

Combining all the supply schedules of all Combining all the supply schedules of all businesses that provide the same type of businesses that provide the same type of good or servicegood or service

examples: examples: allall sporting goods stores sporting goods stores allall car washes car washes

allall video game stores video game stores allall music stores music stores

#15#15Market Supply for all video game Market Supply for all video game

companiescompanies (Sony, Nintendo, XBox)(Sony, Nintendo, XBox)

PricePrice QuantityQuantity RevenueRevenue

$50$50 275275 $13,750$13,750

$40$40 225225 $9,000$9,000

$30$30 180180 $5,400$5,400

$20$20 105105 $2,100$2,100

$10$10 5555 $550$550

$5$5 3030 $150$150

#16#16The supply curve slopes up The supply curve slopes up b/cb/c

Producers are willing to Producers are willing to sell moresell more games at games at higher priceshigher prices

Why? To make a profit!Why? To make a profit!

#17#17The most significant The most significant influence of on quantity influence of on quantity supplied is supplied is

Price!Price!

Changes in SupplyChanges in Supply

#18#18For a change in supply to take place, For a change in supply to take place, producersproducers must decide to offer a different must decide to offer a different

quantity of output at each possible quantity of output at each possible priceprice in the in the market.market.

#19#19When the supply goes down, the supply curve When the supply goes down, the supply curve

shifts shifts leftleft. When supply goes up, it shifts to the . When supply goes up, it shifts to the right.right.

We will now skip to #24 We will now skip to #24 to fill in the big chart!to fill in the big chart!

Follow the instructions!Follow the instructions!

#24#24The factors that affect supply & The factors that affect supply & determine how many goods are solddetermine how many goods are sold

(All of these need to be listed in the far left hand box for your chart in # 24.)(All of these need to be listed in the far left hand box for your chart in # 24.)

Changes in the cost of resourcesChanges in the cost of resources ProductivityProductivity TechnologyTechnology Changes in Govt. PoliciesChanges in Govt. Policies Changes in Taxes Changes in Taxes Changes in SubsidiesChanges in Subsidies Changes in ExpectationsChanges in Expectations Changes in the # of SuppliersChanges in the # of Suppliers

Fill in the answers for #24.Fill in the answers for #24.Factor Factor Example of Example of

Increase in SupplyIncrease in Supply

Example of Example of Decrease in SupplyDecrease in Supply

Changes in the cost of resourcesChanges in the cost of resources

ProductivityProductivity

TechnologyTechnology

Changes in Govt. PoliciesChanges in Govt. Policies

Changes in Taxes Changes in Taxes

Changes in SubsidiesChanges in Subsidies

Changes in ExpectationsChanges in Expectations

Changes in the # of SuppliersChanges in the # of Suppliers

In order to fill these boxes in, the next 8 slides will give you the information that needs to be copied. If you think your handwriting won’t fit, you may use a separate sheet of paper. Go ahead & click to the next slide.

Changes in the cost of resourcesChanges in the cost of resources( the supplies you need to make your product)( the supplies you need to make your product)

Increase in SupplyIncrease in Supply You own a cake company.You own a cake company. On a regular week, you make On a regular week, you make

100 cakes.100 cakes. The price of eggs, milk, and The price of eggs, milk, and

flour all go on sale & are 50% flour all go on sale & are 50% off. off.

You can now produce 120 You can now produce 120 cakes.cakes.

************************************************************** The cost of your resources The cost of your resources

went DOWN, so your supply went DOWN, so your supply of cakes went UP = increase of cakes went UP = increase in supply!in supply!

Decrease in SupplyDecrease in Supply The price of eggs, milk, and The price of eggs, milk, and

flour all go flour all go upup. . You can only produce 85 You can only produce 85

cakes instead of 100.cakes instead of 100.********************************************************************** The cost of your resources The cost of your resources

went up, so your supply of went up, so your supply of cakes went down = decrease cakes went down = decrease in supply!in supply!

Productivity Productivity (making goods faster, more efficient)(making goods faster, more efficient)

Increase in SupplyIncrease in Supply The Barbie doll company The Barbie doll company

figures out they can get figures out they can get dolls made faster if its dolls made faster if its workers work in an workers work in an assembly line!assembly line!

Station 1: puts on armsStation 1: puts on arms Station 2: puts on legsStation 2: puts on legs Etc, Etc.Etc, Etc. They can get 2x as They can get 2x as

many dolls completed.many dolls completed. Supply of Barbies Supply of Barbies

increase!increase!

Decrease in SupplyDecrease in Supply The Barbie Doll The Barbie Doll

company has each company has each worker making an entire worker making an entire doll all by himself.doll all by himself.

Some dolls are missing Some dolls are missing an eyeball. Some have an eyeball. Some have no left arm. Those dolls no left arm. Those dolls have to be thrown out.have to be thrown out.

Decrease in Barbies!Decrease in Barbies!

Using TechnologyUsing TechnologyIncrease in SupplyIncrease in Supply A grocery store has its A grocery store has its

cashiers use cash registers cashiers use cash registers to check-out customers.to check-out customers.

Grocery stores also use Grocery stores also use scanners. scanners.

Faster technology = can get Faster technology = can get customers through the line customers through the line more quickly! more quickly!

Therefore, more goods sold! Therefore, more goods sold! Supply of goods going out the Supply of goods going out the

door (sold) goes increases!door (sold) goes increases!

Decrease in SupplyDecrease in Supply A grocery store has its A grocery store has its

cashiers checking out cashiers checking out customers using a calculator customers using a calculator (or worse, doing the math on (or worse, doing the math on w/ pencil & paper)w/ pencil & paper)

This is taking too long!This is taking too long! The check-out lines have 20 The check-out lines have 20

customers waiting & many customers waiting & many are getting frustrated.are getting frustrated.

Several customers leave!!Several customers leave!! Goods aren’t being sold.Goods aren’t being sold. Supply of goods going out the Supply of goods going out the

door (not sold) decreases!door (not sold) decreases!

Changes in Govt. PoliciesChanges in Govt. PoliciesIncrease in SupplyIncrease in Supply Changes in govt. policies Changes in govt. policies

very, very rarely leads to very, very rarely leads to an increase in supply.an increase in supply.

Decrease in SupplyDecrease in Supply 20 people work at McD.20 people work at McD. The govt. raises minimum The govt. raises minimum

wage to $10/hr. wage to $10/hr. This adds to McD’s variable This adds to McD’s variable

costs.costs. McD has to fire 10 workers McD has to fire 10 workers

b/c they can’t pay b/c they can’t pay everyone. everyone.

Those 10 people who are Those 10 people who are left working can’t produce left working can’t produce as many hamburgers. as many hamburgers.

Decrease in supply of Decrease in supply of hamburgers!hamburgers!

Changes in Taxes Changes in Taxes

Increase in SupplyIncrease in Supply The govt. lowers the The govt. lowers the

taxes on a business’ taxes on a business’ equipment. equipment.

Its variable costs go Its variable costs go down. down.

The business can The business can produce more goods produce more goods b/c of low taxes.b/c of low taxes.

Increase in supply!Increase in supply!

Decrease in SupplyDecrease in Supply The govt. raises the The govt. raises the

taxes on a business’ taxes on a business’ equipment. equipment.

Its variable costs go Its variable costs go up. up.

The business The business produces fewer produces fewer goods b/c of high goods b/c of high taxes.taxes.

Decrease in supply!Decrease in supply!

Changes in Subsidies Changes in Subsidies (when the govt. pays a portion of the costs for a (when the govt. pays a portion of the costs for a business)business)

Increase in SupplyIncrease in Supply It costs a farmer $500 to ship It costs a farmer $500 to ship

its milk out of state.its milk out of state. The govt. subsidizes the cost The govt. subsidizes the cost

& agrees to pay $300 of it. & agrees to pay $300 of it. The farmer can ship even The farmer can ship even

more milk b/c the govt. is more milk b/c the govt. is going to help pay for it.going to help pay for it.

It’s like free money as long as It’s like free money as long as the business it doing right.the business it doing right.

Increase in the supply of your Increase in the supply of your product to be sold! More $$ in product to be sold! More $$ in the entrepreneur’s pocket.the entrepreneur’s pocket.

Decrease in SupplyDecrease in Supply Govt. subsidies do not cause Govt. subsidies do not cause

a decrease in supply unless a decrease in supply unless the govt. has to take the the govt. has to take the subsidy away.subsidy away.

Changes in ExpectationsChanges in Expectations

Increase in SupplyIncrease in Supply Businesses expect Businesses expect

that consumer that consumer demand will be high demand will be high in the future.in the future.

Therefore, business Therefore, business will prepare to make will prepare to make lots of their product. lots of their product.

Example:Example: Preparing to sell Preparing to sell

iPadsiPads Increase in supply of Increase in supply of

iPadsiPads

Decrease in SupplyDecrease in Supply Businesses expect Businesses expect

that consumer that consumer demand will be low in demand will be low in the future.the future.

So, they will make So, they will make less of their product.less of their product.

Example:Example: Not making as many Not making as many

desktop computersdesktop computers Decrease in supply Decrease in supply

of desktopsof desktops

Changes in the # of Changes in the # of SuppliersSuppliers

Increase in SupplyIncrease in Supply More suppliers selling More suppliers selling

goods in the market: goods in the market: NikeNike ReebokReebok AdidasAdidas Nu BalanceNu Balance Whoa! That’s a lot of Whoa! That’s a lot of

shoes!shoes!

Supply of shoes Supply of shoes increase!increase!

Decrease in SupplyDecrease in Supply When suppliers go out of When suppliers go out of

business or leave the business or leave the market.market.

Supply of shoes Supply of shoes decrease!decrease!

Now, back to #20 -23.Now, back to #20 -23.

20. Define supply elasticity.20. Define supply elasticity. the measure of how the quantity supplied of a g/s changes the measure of how the quantity supplied of a g/s changes

in response to the price in response to the price

21. A product is said to be supply elastic if quantity changes a 21. A product is said to be supply elastic if quantity changes a lot when prices go up or down.lot when prices go up or down.Example: selling kites, bikes, carsExample: selling kites, bikes, cars

Elastic Supply & Inelastic Supply

22. How is oil an example of supply inelastic?22. How is oil an example of supply inelastic? b/c when oil prices go up, oil companies can’t b/c when oil prices go up, oil companies can’t just quickly dig a new well, build a pipeline, build just quickly dig a new well, build a pipeline, build an oil refinery, and make the gas. Inelastic supply an oil refinery, and make the gas. Inelastic supply of goods is not that easy, not flexible. It takes a of goods is not that easy, not flexible. It takes a while to get those goods made.while to get those goods made.

23. A product is said to be supply inelastic if quantity 23. A product is said to be supply inelastic if quantity changes very little.changes very little.

Example: oilExample: oil