Supply Notes
Quantity Supplied
• Is the quantity of a good or service
producers are willing and able to sell at
the particular price during a specified
time period
P1
As price decreases,
quantity supplied
decreases
P2
Q2
Q1
Supply
Is the quantities of a good or service producers are
willing and able to sell at various prices during a
specified period of time.
Increase in Supply
Decrease in Supply
Relationships
• As price
, Quantity Supplied
• As price
, Quantity Supplied
•
DIRECT
The relationship is ___________________
LAW _____
OF
• This relationship is called the_____
SUPPLY
____________
UP
• The supply curve is generally _________-ward
sloping from left to right
Explanation
• A SUPPLY
_________ curve is generally upward
LAW of
sloping because of the ____
INCREASING _____________
MARGINAL
COSTS
___________
_________.
MORE
Each additional unit produced will cost _____
SHIFTED
MORE
and ______
as resources are _________
PRODUCT
from the production of another __________;
therefore, producers must receive a
HIGHER
________
price to encourage GREATER
________
production. Because of the increasing
COSTS associated with increased production,
______
ENCOURAGE production; lower
higher prices __________
DISCOURAGE production.
prices __________
Price Elasticity of Supply
DEGREE
• Price elasticity of supply is the ______
QUANTITY
of responsiveness of QS (________
SUPPLIED to a change in PRICE
_______)
______
The more responsive the QS is to a change
ELASTIC the supply
in price, the more ________
The less responsive the QS is to a change
in price, the more INELASTIC
________ the supply
Non-price Determinants of
Elasticity of Supply
• The main determinant of elasticity of
TIME
supply is ______.
(How much TIME
_____ is
available for producers to ______
SHIFT
resources from the production of one
ADJUST to a
product to another to ________
change in price?)
Immediate Market Period (now)
NO time to adjust production;
• ____
NO immediate
therefore, there is ___
CHANGE If a
response (QS) to a price _______.
change in price results in no change in
QS the supply is ____________.
INELASTIC
____,
EX: If the price of gas goes up
without warning, then Toyota cannot
adjust their factories to produce more
Prius and less Tundras
THE SHORT RUN
(some time to adjust)
• Variable resources (land and labor) can be
shifted to provide some responses to a
PRICE however, there is not
change in _______;
enough time to add new _____________
EQUIPMENT
or build a new FACTORY
_________ (fixed price
resources). In the short run, relative to
the immediate market period, the supply
becomes less INELASTIC
___________ and more
__________
ELASTIC
EX: If Toyota has some warning that the price of gas
is going to go up, then they can send extra workers
to the Prius’s factory from the Tundra’s factory
Long Run
Time to adjust both variable and
fixed resources
• In the long run, supply becomes much
more responsive; therefore, more
ELASTIC as time increases.
__________
• Variable resources- land and labor
• Fixed resources- factory and equipment
(capital resources)
EX: If Toyota has a lot of warning that the
price of gas is going to go up, then they can
convert the Tundra factory into a Prius factory.
A change in Supply vs. a change in
Quantity Supplied
• A change in quantity supplied is caused
by a change in PRICE, illustrated by
movement
___________
along the supply curve.
P1
Decrease in
quantity
supplied
P2
Q2
Q1
A change in Supply vs. a change in
Quantity Supplied
• A change in supply is caused by a change
in a ___________
______________
NON-PRICE DETERMINANT
and can be illustrated by a ________
SHIFT in
the supply curve to the ______
LEFT for a
decrease or to the _________
RIGHT for an
increase
Decrease in
Increase in
Supply
Supply
Non-price determinant of supply
• The number of sellers in the marketplace
____# _____S _____# ____S
_____________ relationship
• Change in the price of another good that could
be produced instead of the good
_____P (wheat) _____S (corn)
_____P (wheat) _____S (corn)
_____________ relationship
Non-price determinant of supply
• Expectations about the future
– No generalizations can be made about what all
suppliers will do; it depends on the type of
industry.
– Example 1- wheat farmers, expecting prices to
increase in the future, will withhold wheat (store
it) from the current market at each and every
price, causing the current supply of wheat to
decrease.
– Example 2- In some industries, the expectation
that prices will rise in the future acts as an
incentive to increase current production, causing
the supply to increase.
Non-price determinant of supply
• Costs of production (anything that causes a
change in production costs will change supply)
____costs ____S ____costs ____S
_____________ relationship
• Change in resource prices (L,L,C,E)
_____P (resource) _____S (good)
_____P (resource) _____S (good)
_____________ relationship
Non-price determinant of supply
• New technology (new tech results in greater
efficiency – lower costs)
____tech ____S ____tech ____S
_____________ relationship
• Government policies
– Sales taxes: taxes on the sale or manufacture of goods
and services
– Excise taxes: taxes on the sale or manufacture of a
specific good (cigarettes, gasoline)
– Subsidies- government grants of money to industry to
help them lower the cost of production
– Regulations: rules, policies that restrict business actions
Non-price determinant of supply
• Sales and Excise Tax
____tax ____S ____tax ____S
___________ relationship
• Subsidies
____sub ____S ____sub ____S
___________ relationship
• Regulations
____reg ____S ____reg ____S
___________ relationship