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# Supply 1

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Supply curve

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### Supply 1

1. 1. Supply<br />It’s Just Like Demand, but Different<br />
2. 2. Changing Roles<br />Remember today we are talking about supply (and not demand). So you need to think about things as if you were a business trying to make the most money possible.<br />You are NOT a consumer trying to save money.<br />PROFIT! PROFIT! PROFIT! PROFIT!<br />
3. 3. What is Supply?<br />Supply is how much a firm is willing and able to sell at every given price, ceteris paribus<br />Thus, if all else remains the same and the price of a good goes up, what would you expect the response of a firm to be?<br />To produce more, since prices are going up, so will profits<br />
4. 4. Law of Supply<br />Law of Supply - the price of a product (or service) is directly related to the quantity supplied, ceteris paribus.<br />Quantity Supplied - the amount of a good (or service) produced by firms at a particular price.<br />
5. 5. Supply Schedules and Curves<br />Supply Schedule - a table showing the relationship between the price of a good and the quantity supplied per period of time, ceteris paribus.<br />
6. 6. Supply Schedule<br />
7. 7. Supply Schedule<br />
8. 8. Supply Schedule<br />
9. 9. Supply Schedule<br />
10. 10. Supply Curve - a diagram showing the relationship between the price of a good and the quantity supplied per period of time, ceteris paribus.<br />Supply Schedules and Curves<br />
11. 11. Supply Curve<br />
12. 12. Supply Curve<br />P(\$)<br />Remember to ALWAYS label<br />your axes!<br />Qs per month<br />
13. 13. Supply Curve<br />P(\$)<br />20<br />15<br />10<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
14. 14. Supply Curve<br />P(\$)<br />A<br />20<br />15<br />10<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
15. 15. Supply Curve<br />P(\$)<br />A<br />20<br />B<br />15<br />10<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
16. 16. Supply Curve<br />P(\$)<br />A<br />20<br />B<br />15<br />10<br />C<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
17. 17. Supply Curve<br />P(\$)<br />S<br />A<br />20<br />B<br />15<br />10<br />C<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
18. 18. Market Supply Curve<br />Just like it was for Demand, adding “Market” to the front simply means we are now talking about all firms in the market<br />So, a Market Supply Schedule and a Market Supply Curve would be what?<br />
19. 19. Market Supply Schedule<br />
20. 20. Change in S vs. Change in Qs<br />Change in Supply - a shift of the supply curve<br />Change in Quantity Supplied (DQs) - movement along a supply curve<br /><ul><li>A change in quantity supplied can only be caused by a change in the price of the good</li></li></ul><li>Increase in Supply<br />
21. 21. Increase in Supply<br />P<br />Qs<br />
22. 22. Increase in Supply<br />S<br />P<br />Qs<br />
23. 23. Increase in Supply<br />S<br />P<br />Qs<br />
24. 24. Increase in Supply<br />S<br />P<br />S’<br />Qs<br />
25. 25. Increase in Qs<br />
26. 26. Increase in Qs<br />P(\$)<br />Qs per month<br />
27. 27. Increase in Qs<br />S<br />P(\$)<br />Qs per month<br />
28. 28. Increase in Qs<br />S<br />P(\$)<br />A<br />Qs per month<br />
29. 29. Increase in Qs<br />S<br />P(\$)<br />A<br />Qs per month<br />
30. 30. Increase in Qs<br />S<br />P(\$)<br />B<br />A<br />Qs per month<br />
31. 31. Changes in Supply<br />Just like for demand there are a list of the “Determinants of Supply”<br />These are the things that will cause a change in Supply.<br />
32. 32. Price of Relevant Resources<br />If the cost of the resources used to make a product change in price. Then supply will change.<br />Let’s say the cost of plastic (used in making CDs) decreases. What will happen to the supply of CDs?<br />CD Supply will go up, because it is now cheaper to make CD’s at every price.<br />Changes in Supply<br />
33. 33. Resource Price Decrease<br />So, before the cost decrease, at a price of \$20 the firm was willing to make 15 CDs. If costs go down, will the firm still need \$20 to make them want to supply 15 CDs?<br />No, in order to make the same profit they are willing to take a lower price <br />
34. 34. Supply Curve<br />P(\$)<br />A<br />20<br />15<br />A’<br />10<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
35. 35. Resource Price Decrease<br />Thus the firm is willing to supply every quantity at a lower price.<br />Or in other words, at every price the firm is willing to supply more of the good<br />In summary, if the price of a resource goes down, supply increases (shifts to the right)<br />
36. 36. Supply Curve Shift<br />Old Supply Curve<br />P(\$)<br />A<br />20<br />15<br />A’<br />New Supply Curve<br />10<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
37. 37. Obviously the reverse is also true. <br />In increase in the cost of plastic (used in making CDs, makes it more expensive to make every quantity of CDs<br />Price of Relevant Resources<br />
38. 38. Resource Price Increase<br />So, before the cost increase, at a price of \$15 the firm was willing to make 7 CDs. If costs go up, will the firm still need \$15 to make them want to supply 7 CDs?<br />No, in order to make the same profit they are going to need a higher price to cover the higher costs <br />
39. 39. Supply Curve<br />P(\$)<br />B’<br />20<br />B<br />15<br />10<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
40. 40. Resource Price Increase<br />Thus the firm is willing to supply every quantity at a higher price.<br />Or in other words, at every price the firm is willing to supply less of the good<br />In summary, if the price of a resource goes up, supply decreases (shifts to the left)<br />
41. 41. Supply Curve Shift<br /> New Supply Curve<br />P(\$)<br />Old Supply Curve<br />B’<br />20<br />B<br />15<br />10<br />5<br />Qs per month<br />0<br />5<br />10<br />15<br />
42. 42. Technology<br />Similarly changes in technology can change supply<br />Improvement in technology lowers costs<br /><ul><li>Lower cost of production increases Supply</li></ul>Worsening of technology increases costs<br /><ul><li>Higher cost of production decreases Supply</li></ul>Changes in Supply<br />
43. 43. Changes in Supply<br />Number of Sellers<br />More sellers in the market means more quantity is being supplied at every price<br /><ul><li>Increase in supply of the good</li></ul>Less sellers in the market means less quantity is being supplied at every price<br /><ul><li>Decrease supply of the good</li></li></ul><li>Changes in Supply<br />Expectations of Future Prices <br />Similarly to demand, what firms think will happen to prices in the future will effect supply now.<br />If Firms expect price of their good to decrease in the future what will happen?<br /><ul><li>Supply increases today
44. 44. Firm would prefer to sell today when price is higher
45. 45. Remember, they want to make as much money as they can.</li></li></ul><li>Expectations of Future Prices<br />Firms expect price of their good to increase in the future<br /><ul><li>Supply decreases today
46. 46. Firm would prefer to wait until the good can be sold for a higher price</li></li></ul><li>Changes in Supply<br />Taxes<br />Changes in tax rates can also affect supply<br />An Increase in tax on the good decreases supply. Why?<br /><ul><li>Raises the cost of production</li></ul>Decrease in tax on the good increases supply.<br /><ul><li>Lowers the cost of production</li></li></ul><li>Subsidies<br />A subsidy is an amount the paid to the producer for each unit of a good produced<br />Adding or removing subsidies changes supply.<br />Increase in subsidy on a good increases supply. Why?<br /><ul><li>Lowers the costs of production</li></ul>Decrease in Subsidy on the Good Decreases Supply<br /><ul><li>Raises the costs of production</li></ul>Changes in Supply<br />
47. 47. Changes in Supply<br />Availability of Credit <br />How easy it is to borrow money affects supply.<br />If interest rates are low, then it is easier for the firm to borrow money and thus supply will do what?<br />Supply increases<br />If interest rates are high, it is more difficult for the firm to borrow money and thus supply does what?<br />Supply decreases<br />
48. 48. Elasticity of Supply<br />Is a measure of how Suppliers will respond to changes in the market.<br />Operates exactly like Elasticity of Demand<br />Inelastic - price changes have little of no effect on supply<br />Elastic – price changes have dramatic effect of supply<br />Just like with Demand, Time changes most things to elastic<br />
49. 49. Increase in Supply<br />
50. 50. Increase in Supply<br />P<br />Qs<br />
51. 51. Increase in Supply<br />S<br />P<br />Qs<br />
52. 52. Increase in Supply<br />S<br />P<br />Qs<br />
53. 53. Increase in Supply<br />S<br />P<br />S’<br />Qs<br />
54. 54. Increase in Qs<br />
55. 55. Increase in Qs<br />P(\$)<br />Qs per month<br />
56. 56. Increase in Qs<br />S<br />P(\$)<br />Qs per month<br />
57. 57. Increase in Qs<br />S<br />P(\$)<br />A<br />Qs per month<br />
58. 58. Increase in Qs<br />S<br />P(\$)<br />A<br />Qs per month<br />
59. 59. Increase in Qs<br />S<br />P(\$)<br />B<br />A<br />Qs per month<br />
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