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Chapter 4 Supply
 

Chapter 4 Supply

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    Chapter 4 Supply Chapter 4 Supply Presentation Transcript

    • Chapter 4: Supply
    • Supply
      • Economically Speaking: Qty of a good or service one is willing and able to provide at various prices
        • If you are unwilling and/or unable to sell, you can’t supply
      • Law of Supply: Firms will sell more at a higher cost, and less at a lower cost
      • Price Effect: How Law of Demand affects sellers - they’ll sell more at a higher price than at a lower price
        • (Prices = incentives, disincentives)
    • How to Graph Supply:
      • Market Supply: All possible P,Q combinations!
      • Aggregate Supply : Total of all goods,services of all firms
      Supply (S) Quantity (Q) Price (P)
    • Major Consideration of Supply
      • Marginal Costs: Cost of producing add’l goods and services
        •  production =  cost of production
          •  labor costs
          •  wear on machinery
          •  difficulty in extracting resources (scarcity)
        • Production will continue until marginal costs = marginal benefits
    • Price Elasticity of Supply
      • Elastic (Luxury item):
      • Price changes greatly affect the # of products supplied
      •  # of items to sell when price 
      • Inelastic (Necessity):
      • Price changes have little or no effect on # of products supplied
      • Gas is inelastic, since a price  means producers can make  $ w/ same sales (my gas tank didn’t get any smaller) :(
    • Price Effect vs Change in Supply
      • Market Supply is the combination of all P and Q supplied
      • Various points along supply curve = Price Effect
      • A Change in Supply occurs when:
        • Firms supply  Q at all P
        • Firms supply  Q at all P
    • A Supply Curve Shift S 1 = Original Supply S 2 = Increase in Supply S 3 = Decrease in Supply P Q S 1 S 2 S 3
    • What Causes A Supply Shift?
      • Change in Marginal Cost
      • Change in the # of Sellers
      • Change in Expectations
    • Shifting Supply Curves
      • 1) When Marginal cost  in supply
      • if # of producers  supply
      • price of cheese  supply now and in future