supply warm up: what is a good you can least do without? how much do you pay now, and how much would...
TRANSCRIPT
Supply
Warm Up:Warm Up:What is a good you can LEAST do without? How much do you pay now, and how much would you be willing to pay for it before you stop using it? Explain whether this item is elastic or inelastic for you.
Nature of Supply
Supply—is the quantity of goods and services that producers are willing to offer at various prices during a given time period.
The Quantity Supplied—is the amount of a good or service that a producer is willing to sell at each particular price.
Price
Quantity
1
2
3
1 2 3
4
4
Quantity
Supplied
As Pric
e incre
ases Q
S
increase
s
Price
Quantity
1
2
3
1 2 3
4
4
Quantity
Supplied
As Pric
e dec
reases
QS decrea
ses
The Law of Supply
Law of Supply—States that producers supply more goods when they can sell them at higher prices and fewer goods when they must sell them at lower prices. Ex. MP3 players at $300 vs. $200Profit—The amount of money remaining
after producers have paid for all their costs.
Supply is a schedule which shows the amounts of a product a producer is willing and able to produce and make available for sale at each price in a series of prices
Supply Schedule
Price in $Quantity Supplied
5 7
4 5
3 2
2 1
1 0
Law of Supply
Market Supply Curve
Pri
ce
(in
do
lla
rs)
Output (slices per day)
3.00
2.50
2.00
1.50
1.00
.50
0
0 500 1000 1500 2000 2500 3000 3500
Supply
Production Costs
Fixed Cost – cost that does not change, no matter how much of a good is produced include rent, buildings, machinery, etc.
Variable Cost – a cost that rises or falls depending on how much is produced include wages, utilities, materials used in
production, etc
Production Costs
Total Cost = fixed costs + variable costsMarginal Cost – cost of producing one
more unit of goodProduction Costs
Total revenue
Profit(total revenue –
total cost)
Marginal revenue
(market price)
Marginal cost
Total cost (fixed cost +
variable cost)
Variable cost
Fixed cost
Beanbags (per hour)
$ –36
–20
0
21
40
0
1
2
3
4
$0
24
48
72
96
$24
24
24
24
24
—
$8
4
3
5
$36
44
48
51
56
$0
8
12
15
20
$36
36
36
36
3657
72
84
93
5
6
7
8
120
144
168
192
24
24
24
24
7
9
12
15
63
72
84
99
27
36
48
63
36
36
36
36
98
98
92
79
216
240
264
288
24
24
24
24
19
24
30
37
36
36
36
36
9
10
11
12
82
106
136
173
118
142
172
209
Total Cost = fixed costs + variable costsMarginal Cost – cost of producing one
more unit of goodProduction Costs
Total revenue
Profit(total revenue –
total cost)
Marginal revenue
(market price)
Marginal cost
Total cost (fixed cost +
variable cost)
Variable cost
Fixed cost
Beanbags (per hour)
$ –36
–20
0
21
40
0
1
2
3
4
$0
24
48
72
96
$24
24
24
24
24
—
$8
4
3
5
$36
44
48
51
56
$0
8
12
15
20
$36
36
36
36
3657
72
84
93
5
6
7
8
120
144
168
192
24
24
24
24
7
9
12
15
63
72
84
99
27
36
48
63
36
36
36
36
98
98
92
79
216
240
264
288
24
24
24
24
19
24
30
37
36
36
36
36
9
10
11
12
82
106
136
173
118
142
172
209
Elastic Supply
Products with elastic supply can be:1. Made quickly2. Inexpensively3. Use a few readily available resources Sports teams apparel—tee
shirts,hats Ex. Super Bowl championship
Demand soars, prices rise, supply increases.
Inelastic Supply
Inelastic supply—exists when a change in a goods price has little impact on the quantity supplied.
Inelastic supply if production requires:1. Time
2. Money
3. Resources not readily available
Ex. Gold, fine art, space shuttles, etc.
Inelastic Supply
Perfect inelastic supply exists when producers, regardless of price, cannot increase the quantity supplied.Ex. Ocean front lots10 lots to sell—regardless of priceCan charge more $ but cannot produce
more ocean front lots.
Changes in Supply that shifts the curve include… Resource prices (Cost of production)- wages
If costs rise supply decreases and vice versa Changes in technology
New technology increases efficiency and production Changes in taxes and subsidies
Firms do not make money off taxes and is a disincentive to produce Subsidies encourage suppliers to produce more and enter the market
Prices of related goods If a company sees higher prices for a related good they produce that
good Pepsi and Aquafina- If water prices increase Pepsi will start bottling
more water Price expectations
If the price rises in the future suppliers will produce less now The number of sellers in the market
More suppliers pushes the supply curve out
Not Price
Shift to the “Right”
Shift to the “Left”
