What is Supply?
Supply
How
many hours do you spend
studying every night?
How many hours would you
study if you were paid $1 an
hour?
$10 an hour?
If you would study more at a
higher price, you are following
the Law of Supply.
Supply
What is
the nature of
demand?
Supply is almost the mirror
image of demand.
It describes the other half of
the market which provides
products for those who
demand them.
Supply
Do YOU play
a role as producers in the
market?
Producers provide services as well as
goods.
Does anyone have a part-time job, do
baby-sitting, or household chores for
allowance?
Then YOU are a producer supplying an
economic product, your labor, to buyers
in the marketplace.
Supply
When economists consider
demand, they are
interested in the desire, ability, and willingness to
purchase a product over a wide range of prices.
Remember, economists are concerned with the market
as a whole.
Therefore, Supply is the quantity of a product or
service that sellers will provide at all possible prices
that could prevail in the market.
For example, the supply of TV sets is the number of
sets manufacturers will likely produce if the prevailing
market is $700, $500, $300, or any other prices.
Everyone who
Supply
offers an economic product for sale is a
supplier.
YOU will be more willing to supply more labor at a
higher wage than you would for a low one.
It is reasonable to predict that the higher the price, the
greater quantity the seller will offer for sale.
Supply
Supply Schedule
is a listing that
shows the quantity supplied at each
and every price.
Supply Curve shows the same
information in the form of a graph.
It always slopes upward to the right.
This is the opposite of the demand
curve.
Supply
A supply schedule and curve.
The Law of Supply
Thus, the
Law of Supply states that
the quantity supplied varies directly
with its price.
In other words, if prices are high,
suppliers will offer greater quantities
for sale.
If prices are low, they will offer
smaller quantities for sale.
Change in Quantity Supplied
The amount
that producers bring to market at any
one price is called the quantity supplied.
A Change in Quantity Supplied is the change in
amount offered for sale in response to a change
in price.
This is shown on the supply curve by a
movement along the curve.
Change in Quantity Supplied
 For
example, 350 T-shirts are supplied when the price in $30.
 If the price decreases to $24, 300 T-shirts are supplied.
 If the price then changes to $21, 240 T-shirts are supplied.
 These changes illustrate a change in the quantity supplied.
Change in Supply
Sometimes producers offer different amounts
of
products for sale at all possible prices in the market.
This is known as a Change in Supply.
This is shown on the supply curve by a shift in the
entire curve.
Reasons for
Change in Supply
change in supply:
1. Cost of Inputs – In the T-shirt example, if the cost of
ink or cotton goes down, then producers can produce
more t-shirts at each and every price. The supply
curve would shift right.
If the cost of inputs increases, producers would not be
willing to produce as many shirts at each and every.
The supply curve would shift left.
Change in Supply
2.
Productivity – If management trains workers to be
more efficient then productivity increases.
The supply curve shifts to the right because more
shirts are produced at every possible price in the
market.
Change in Supply
3. Technology –
New technology almost always shifts
the curve to the right.
The introduction of a new machine, chemical, or
industrial process can affect supply by lowering the
cost of production.
New technology does not always work as expected.
Equipment might break down or parts may be difficult
to obtain.
Change in Supply
4.
Number of Sellers – The supply curve represents all
producers. Thus, when new suppliers enter the
market supply increases, or shifts to the right.
If some sellers leave the market, fewer products are
offered for sale at all possible prices.
Supply decreases, and the supply curve shifts to the
left.
5. Taxes and
Change in Supply
Subsidies – They have the same impact
as cost of inputs.
If the producer’s inventory is taxed, the cost of
production increases. (Shift to the left)
 If the government provides subsidies, the cost of
production decreases. (Shift to the right)
Change in Supply
6.
Expectations – The anticipation of future events. If
producers expect future price increases, they will
withhold some of the supply, shifting the curve left.
If producers expect future price decreases, they will
flood the market, shifting the curve right.
Change in Supply
7.
Government Regulations - When government
places mandates on producers, the cost of inputs
increases, shifting the curve to the left.
For example, when government mandates new auto
safety features such as stronger bumpers, air bags,
and emission controls, cars cost more to produce.
Change in Supply
What do
you think happens to the supply curve in
the following situations and why?
1. Cost of materials used to make CDs fall.
(Shifts to right because supply increases because
price of inputs falls.)
2. New training methods improve worker
efficiency.
(Shifts to right because supply increases due to
increased productivity.)
Change in Supply
3.
Innovative process for pressing CDs
introduced.
(Shifts to right because supply increases because
new technology lowers production costs.)
4. Leading CD producer goes out of business.
(Shifts of left because supply decreased by
suppliers leaving the market.)
Supply Elasticity
Just as
demand has elasticity, there is elasticity of
supply.
Supply Elasticity tells how much a change in price
affects quantity supplied.
Products that require large amounts of money and
technology to change production tends to be
Inelastic.
Products made quickly without large amounts of
money and technology is elastic. (Candy and toys)