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Chapter 4 Supply
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Chapter 4 Supply

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  • 1. Chapter 4: Supply
  • 2. 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)
  • 3. 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)
  • 4. 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
  • 5. 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) :(
  • 6. 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
  • 7. 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
  • 8. What Causes A Supply Shift?
    • Change in Marginal Cost
    • Change in the # of Sellers
    • Change in Expectations
  • 9. Shifting Supply Curves
    • 1) When Marginal cost  in supply
    • if # of producers  supply
    • price of cheese  supply now and in future

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