Chapter 5.1: SupplyChapter 5.1: SupplyChapter 5.1: SupplyChapter 5.1: Supply

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ObjectivesObjectives

1. Explain the law of supply.

2. Interpret a supply schedule and a supply graph.

3. Examine the relationship between elasticity of supply and time.

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Bell RingerBell Ringer

• Divide into groups of 3…instructions to follow:– Each group list and number the brand names

of as many bottled beverages as you can in four minutes

• Mt Dew, Vitamin Water, Sprite etc etc

– Once four minutes is up, decide how to divide your list into categories

• Example – Type of beverage, price, type of container, marketed as sports/health/thirst quenching.

Slide 4Copyright © Pearson Education, Inc.Chapter 5, Section 1

Bell RingerBell Ringer

• How many did you list?• How did you categorize?• Why are there so many varieties in each

category??• Why is there more than one type of bottled

water!!??

• PEOPLE ARE WILLING TO PAY FOR IT!!

Slide 5Copyright © Pearson Education, Inc.Chapter 1, Opener

Understanding SupplyUnderstanding Supply

SupplyThe amount of goods available

Suppose you own a bakery. Even after you raised prices, you can’t keep products on the shelf.

What will you do?

Slide 6Copyright © Pearson Education, Inc.Chapter 1, Opener

Understanding SupplyUnderstanding Supply

Law of SupplyProducers offer more of a good as its price increases and less as its price falls

Slide 7Copyright © Pearson Education, Inc.Chapter 5, Section 1

Law of SupplyLaw of Supply

• How does the law of supply affect the quantity supplied?

– As prices rise, producers will offer more – New suppliers will enter the market in the

hopes of making a profit.

Slide 8Copyright © Pearson Education, Inc.Chapter 5, Section 1

The Law of SupplyThe Law of Supply

• The law of supply includes two movements:

• Individual firms changing their level of production

• Firms entering or exiting the market

Slide 9Copyright © Pearson Education, Inc.Chapter 1, Opener

Understanding SupplyUnderstanding Supply

Quantity suppliedThe amount that a supplier is willing and able to supply at a specific price

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Market EntryMarket Entry

• Checkpoint: Why do firms increase production when the price of a good goes up?– To make more money. Duh.

– What type of music is popular now?• Why are so many bands/artists supplying this type

of music?

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Supply ScheduleSupply Schedule

• The supply schedule lists how many slices of pizza one pizzeria will offer at different prices. The market supply schedule represents all suppliers in a market.– What does the individual

supply schedule tell you about the pizzeria owner’s decisions?

– How does the market supply schedule compare to the individual supply schedule?

Slide 12Copyright © Pearson Education, Inc.Chapter 1, Opener

Understanding SupplyUnderstanding Supply

variableA factor that can change

What are the only two variables in a supply or market supply schedule?•Price charged•Quantity supplied

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The Supply GraphThe Supply Graph

• A supply schedule goes opposite direction than demand. SUPPLY = WUZZ SUP!– A supply curve always rises from left to right because

higher prices leads to higher output.– Checkpoint: What are the two variables represented

in a supply schedule or supply curve?

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Elasticity of SupplyElasticity of Supply

• Elasticity of supply, based on the same concept of elasticity of demand, measures

how firms will respond to changes in the price of a good.– Elastic

• When elasticity is greater than one, supply is very sensitive to price changes

– Inelastic• When elasticity is less than one, supply is not very

responsive to price changes.

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ElasticityElasticity

• What is the main factor that determines whether the supply of a good will be elastic or inelastic?– Remember, we are thinking how much/little a business

is willing and able to supply

• Time. In the short run, a firm can’t easily change its output level.

• Read “Elasticity of Supply in the Short Run” pg 114

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Elasticity in the Short RunElasticity in the Short Run

In the short run, it is difficult for many firms to change its output level, so supply is inelastic.

On the other hand, some businesses are elastic in the short run.Barbershops/salons. Why?

As the price of haircuts fluctuates, owners will adjust hours/employees

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Trivia Time!Trivia Time!

• What is this barber shop thingie called?

Barber pole!

Slide 18Copyright © Pearson Education, Inc.Chapter 5, Section 1

Elasticity in the Long RunElasticity in the Long Run

• In the long run, supply can become more elastic.

• Just like demand, supply becomes more elastic if the supplier has a longer time to respond to a price change.

• How does a business that is highly elastic respond to a fall in prices?

Slide 19Copyright © Pearson Education, Inc.Chapter 5, Section 1

ReviewReview

• Now that you have learned how the law of supply affects the quantity supplied, go back and answer the Chapter Essential Question.– How do suppliers decide what goods and

services to offer?