4 Supply


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4 Supply

  1. 1. Supply Like demand, but different.
  2. 2. Objectives •What is supply and how does it illustrate price effect? •What is the difference between the price effect and a change in supply?
  3. 3. Think of the things you do to earn money. Would you be as willing to supply your time to do them if you were paid nothing for your efforts?
  4. 4. What is supply? The various amounts of something a producer is willing and able to sell at different possible prices at a particular time.
  5. 5. What happens to your cost of production as you make more of something? What is the incentive of producing if it is more expensive? Marginal cost vs. Marginal benefit
  6. 6. As long as the price of the next (marginal) unit covers the marginal cost, the producer will make money and has incentive to produce more. What does that mean?
  7. 7. The Law of Supply As the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa.
  8. 8. Price Elasticity of Supply What’s it mean? Change in price of good/service --> change in quantity supplied
  9. 9. • Elastic supply means that a change in price results in a large change of supply • Characteristics? • Inelastic supply means that a change in price results in a small change of supply • Characteristics? • What does that look like graphically?
  10. 10. Examples • Gasoline production • Airplane production • Fast food restaurants • Lemonade stand • How can you tell if something is elastic or inelastic?
  11. 11. Trying to Decide If Something is Elastic or Inelastic? •Look at the situation • Look at the graph •Easy to bring new • Steep slope = resources into inelastic production in • Gradual slope = elastic response to a higher price? That is elastic. •The opposite is inelastic.
  12. 12. What Changes Supply? • Price? • NO! Change in price is a movement on the curve. There are 3 things that can change the supply curve…
  13. 13. Changes in the marginal cost of production • Better technology, production methods, more efficient workers etc.
  14. 14. Changes in the number of sellers or producers • When new businesses enter a market, supply increases.
  15. 15. Change in expectations • If producers expect higher future prices for their products, they may change their supplies today.
  16. 16. Exit Ticket quot;Name two ways that supply and demand are similar and two ways they are different.quot;