Unit 3: Supply and Demand

Chapter 5: Supply

Introduction

• Supply = the amount of goods generally available

Introduction

• Law of Supply– firms are willing to produce

more as the price goes up• They can make bigger profits

– firms are not willing to produce as much as the price goes down • They don’t make as much profit

S

S

P

P

Introduction

• Quantity Supplied– what the producers are able to produce at a

certain price– what the producers are willing to produce at a

certain price

Introduction

• Methods to Increase Supply– Higher Production• existing firms increase output• get more profit

– Market Entry• new firms enter the market• they want to get some of those profits

The Supply Schedule

• it looks like a chart• shows what a firm is willing to produce

when considering– price– quantity sold

The Supply Schedule• Types– individual supply schedule• what a single business is willing to supply at different prices

– market supply schedule• what ALL of the businesses are willing to supply at different

prices

The Supply Curve

• it looks like a graph• it gets its data from a supply schedule

The Supply Curve

• axes– vertical• always is Price• always rises from 0 to highest price

– horizontal• always is Quantity• always has zero at left and highest price at right

– slope• shows the Law of Supply• rises from left to right

Elasticity

• measures how people react to change in prices

• if reaction is extreme, it is elastic• if reaction is slight, it is inelastic

Elasticity

• how time effects reactions– inelastic supply in SHORT TERM, but can react in

LONG TERM• agriculture

– must plant more– must wait for plants to begin to produce

• big businesses (like car manufacturing)– must get new technology and training– must wait for new factories to be built

Elasticity

– elastic in SHORT TERM• small businesses• service industry

– less capital needed to expand– less capital needed to enter the market