Chapter 5 - Supply
Section 1 – What is Supply?
• Supply – the willingness and ability of producers to offer goods and
services for sale
• Producer – anyone who provides goods or services
• Consumer – anyone who buys goods or services
Law of Supply
As
Prices
Fall…
Quantity
Supplied
falls
As
Prices
Rise…
Quantity
Supplied
Rises.
Supply Schedules
• Supply Schedule – list (table) how much of a good or service an
individual producer is willing and able to offer for sale at each
price
• Market Supply Schedule – lists (table) how much of a good or
service all producers in a market are willing and able to offer for
sale at each price
Create Your Own Supply Schedule
• Imagine that you own a health food store that sells several brands
of nutrition bars. Create a supply schedule showing how many
bars you would be willing to sell each month at prices of $5, $4,
$3, $2, and $1.
My Nutrition Bar Supply Schedule
Price Per Nutrition Bar
Quantity Supplied
$5.00
100
$4.00
80
$3.00
60
$2.00
40
$1.00
20
How does this table represent the law of supply?
Supply Curves
• Supply Curve/Market Supply Curve – shows the data from a supply
schedule in a graph form
Create Your Own Supply Curve
• Use data from your nutrition bars, now create a supply curve.
My Supply Curve
$6
$5
$4
$3
$2
$1
$0
$20
$40
$60
Prices
Column1
$80
Column2
$100
Section 2 – What are the Costs of Production?
• Marginal Product – the change in total output brought about by
adding one more worker
• Increasing Returns – occur when hiring new workers causes
marginal product to increase
• Decreasing Returns – occur when hiring new workers causes
marginal product to decrease
Production Costs
• Fixed Costs – those that business owners incur no matter how
much they produce
• Variable Costs – depend on the level of production output
• Total Costs – the sum of fixed and variable costs
• Marginal Costs – the extra cost of producing one more unit
Why does it cost Janine more to produce 65 pairs of jeans with 11 workers than to produce 66
pairs of jeans with 9 workers?
Earning the Highest Profit
• Marginal Revenue – the money made from the sale of each
additional unit of output
• Total Revenue – a company’s income from selling its products
• Total Revenue = P x Q
• P is price of the product
• Q is quantity purchased at that price
• Profit-Maximizing Output – the level of production at which a
business realizes the greatest amount of profit
Section 3 – What Factors Affect Supply?
Factors that Cause a Change in Supply
Definition
Input Costs
The collective price of the resources that go into
producing a good or service, affect supply directly
Labor Productivity
Better-trained or more-skilled workers are usually
more productive.
Increased productivity decreases costs and
increases supply.
Technology
By applying scientific advances to the production
process, producers have learned to generate their
goods and services more efficiently.
Government Action
Taxes or subsidies, have a positive or negative
effect on production costs
Producer Expectations
Amount of product producers are willing and able
to supply may be influenced by whether they
believe prices will go up or down
Number of Producers
Successful new product or service always brings
out competitors who initially raise overall supply
What effects did BET’s success
have on the supply of AfricanAmerican programming?
Section 4 – What is Elasticity of Supply?
• Elasticity of Supply – a measure of how responsive producers are
to price changes in the marketplace
• Elastic Supply – supply could be increased as supply goes up because
resources needed are neither particularly expensive nor hard to come by
• Inelastic Supply – supply could not be increased due to resources being
expensive and hard to come by
What Affects Elasticity of Supply?
• Changing production to respond to price change
• Industries that are able to respond quickly to changes in prices by either
increasing or decreasing production are those that don’t require a lot of
capital, skilled labor, or difficult-to-obtain resources
• Examples
• Quick Responders – Dog Walkers, craft makers
• Longer Responders – Automobile makers, oil refiners