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. 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. 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. 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. 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. 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. Price Elasticity of Supply
What’s it mean?
Change in price of
good/service --> change in
quantity supplied
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. Examples
• Gasoline production
• Airplane production
• Fast food restaurants
• Lemonade stand
• How can you tell if
something is elastic or
inelastic?
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. 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. Changes in the marginal cost of
production
• Better technology, production methods,
more efficient workers etc.
14. Changes in the number of sellers
or producers
• When new businesses enter a market,
supply increases.
15. Change in expectations
• If producers expect higher future prices
for their products, they may change their
supplies today.
16. Exit Ticket
quot;Name two ways that
supply and demand
are similar and two
ways they are
different.quot;
