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Law of supply
Law of supply
Law of supply
Law of supply
Law of supply
Law of supply
Law of supply
Law of supply
Law of supply
Law of supply
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Law of supply

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  • 1. Law of Supply What Makes A Producer Provide the Quantity of Goods & Services?
  • 2. What is Supply? <ul><li>Supply indicates how much a good producers are willing and able to offer for sale per period at each possible price, other things constant. </li></ul>
  • 3. Law of Supply <ul><li>As a good’s price increases (decreases), the quantity suppliers are willing and able to supply increases (decreases) </li></ul><ul><li>The quantity supplied is usually directly related to its price </li></ul><ul><li>P QS </li></ul>
  • 4. Supply Schedule &amp; Curves <ul><li>A Supply Schedule displays the quantity of a product supplied at each price </li></ul>Price Per Bottle Bottles Supplied Firm A Bottles Supplied Firm B .74 200 100 .50 130 70 .36 75 50 .28 50 25
  • 5. <ul><li>A Supply Curve shows a graphic representation of the quantities of a good supplied at various prices </li></ul><ul><li>Graph 2 individual Supply curves for Firms A and B using the Supply Schedule on the previous slide </li></ul>
  • 6. Opportunity Cost of Supplying a Good <ul><li>Supplier costs are opportunity costs </li></ul><ul><li>Suppliers choose among alternatives based on expected benefit/cost </li></ul><ul><li>Producers must pay to use resources </li></ul><ul><li>Resource price reflects its next-best alternative </li></ul><ul><li>$-value of a resources’ foregone opportunities is the cost of supplying good </li></ul>
  • 7. Changes in Supply vs. Change in Quantity Supplied <ul><li>Change in a good’s own price causes change in quantity supplied </li></ul><ul><ul><li>Movement along the supply curve </li></ul></ul><ul><li>Change in supply caused by change in determinant of supply </li></ul><ul><ul><li>Shifts supply curve </li></ul></ul>
  • 8. Determinants of Supply <ul><li>Technology </li></ul><ul><ul><li>If more efficient technology is discovered production costs will fall </li></ul></ul><ul><ul><li>So suppliers will be more willing and able to supply more of the good at each price </li></ul></ul><ul><li>Price of Relevant Resources </li></ul><ul><ul><li>Those resources employed in the production of a good. </li></ul></ul>
  • 9. Determinants con’t <ul><li>Prices of Alternative Goods </li></ul><ul><ul><li>Price of good that use some of the same resources as used to produce the good in question </li></ul></ul><ul><li>Producer Expectations </li></ul><ul><ul><li>Shift production according to future prices </li></ul></ul><ul><li>Number of Producers </li></ul><ul><ul><li># of Prod. Increases # of supply </li></ul></ul>
  • 10. Derterminants con’t <ul><li>Government Restrictions </li></ul><ul><ul><li>Taxes, quotas, licenses, etc. </li></ul></ul>

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