Supply

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Supply

  1. 1. Supply Economics 1
  2. 2. The Law of Supply <ul><li>Supply is the amount of goods available </li></ul><ul><li>The higher the price, the larger the quantity produced </li></ul><ul><li>Quantity supplied is used to describe how much of a good is offered for sale at a specific price </li></ul><ul><li>As the price of a good rises, existing firms will produce more in order to earn additional revenue </li></ul><ul><li>It is all about profit!!!! </li></ul><ul><li>If the price of a good falls, some firms will produce less </li></ul>
  3. 3. Increase of Production <ul><li>If a firm is already earning a profit by selling a good, then an increase in the price will increase the firm’s profits </li></ul><ul><li>The promise of a high revenue encourages companies to produce more </li></ul><ul><li>Keep in mind the pizzeria in your questions….If they are not making a profit, they need to raise the price! </li></ul>
  4. 4. Something to think about… <ul><li>The “market” tends to follow trends </li></ul><ul><li>Music </li></ul><ul><li>Food </li></ul><ul><li>Clothes, etc. </li></ul><ul><li>When the demand is gone, they supply something else! </li></ul>
  5. 5. A Supply Schedule <ul><li>Shows the relationship between price and the quantity supplied for a specific good </li></ul><ul><li>Very similar to a demand schedule </li></ul><ul><li>Shows how much of a good a supplier will offer at different prices </li></ul>
  6. 6. Supply Curve <ul><li>Measures the quantity of the good supplied, not the quantity demanded </li></ul><ul><li>A higher price leads to higher output </li></ul>
  7. 7. Elasticity of Supply <ul><li>Measures the way suppliers respond to a change in price </li></ul><ul><li>When elasticity is greater than one, supply is very sensitive to changes in price and is considered elastic </li></ul><ul><li>If elasticity is less than one, supply is considered inelastic because supply is not responsive to changes in price </li></ul><ul><li>Remember…Unitary means equal to one…when price and quantity supplied are exactly equal! </li></ul>
  8. 8. Try This! <ul><li>Analyze the following situations and explain how elasticity of supply would affect producer decisions in each case! </li></ul><ul><ul><li>The price of apples increases </li></ul></ul><ul><ul><li>The price of an oil change increases </li></ul></ul><ul><ul><li>The price of dry cleaning services increases </li></ul></ul><ul><ul><li>The price of tickets to a football game increases </li></ul></ul>

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