* what is the law of supply? * what are supply schedules and supply curves? * what is elasticity of...
TRANSCRIPT
*What is the law of supply?
*What are supply schedules and supply curves?
*What is elasticity of supply?
*What factors affect elasticity of supply?
Price
As price
increases…
Supply
Quantity supplied increases
Price
As price falls…
Supply
Quantity supplied
falls
According to the law of supply, suppliers will offer more of a good at a higher price.
*Economists use the term quantity supplied to describe how much of a good is offered for sale at a specific price.
*The promise of increased revenues when prices are high encourages firms to produce more.
*Rising prices draw new firms into a market and add to the quantity supplied of a good.
(in other words, healthy profits appeal to producers already in the market and people who may decide to join the market)
Great Example: the music business1970’s: Disco Disco Hits - A Video Compilation of Disco Music from the 70's - YouTube
1980’s: Hair Bands 80s Hair Bands
1990 - today: Gangsta Rap (yeah…I know)
$.50 1,000
Price per slice of pizza Slices supplied per day
Market Supply Schedule
$1.00 1,500
$1.50 2,000
$2.00 2,500
$2.50 3,000
$3.00 3,500
A market supply schedule is a chart/table that lists how much of a good all suppliers will offer at different prices.
Remember: total supply moves in the same direction as prices !
Market Supply Curve
Pri
ce
(in
do
lla
rs)
Output (slices per day)
3.00
2.50
2.00
1.50
1.00
.50
0
0 500 1000 1500 2000 2500 3000 3500
Supply
A market supply curve is a graph of the quantity supplied of a good by all suppliers at different prices.
Elasticity of supply measures the degree to which quantity supplied reacts to a change in price.
If supply is not very responsive to changes in price, it is considered inelastic.
An elastic supply is very sensitive to changes in price.
Remember: total supply moves in the same direction as prices !
Time !
In the long run, firms are more flexible*, so supply can become more elastic.
*They can hire more workers…add more equipment/machines
In the short run, a firm cannot easily change its output level, so supply is
inelastic.
Remember: total supply moves in the same direction as prices !
*A fixed cost is a cost that is independent of how much of a good is produced. It occurs whether few or many units are produced.*Examples:
*Variable costs are costs that rise or fall depending on how much is produced.
Examples:
Total cost = fixed costs + variable costs
How do input costs affect supply?
How can the government affect the supply of a good?
What other factors influence supply?
Remember: total supply moves in the same direction as prices !
Input: any/every factor required to produce - Raw materials - labor - machinery / tools / equipment - shipping costs - rent / electricity / etc. - taxes.Any change in the cost of an input will affect supply.
As input costs increase, profits AND supply decrease.Input costs can also decrease. New technology can lower production costs and increase supply.
Remember: total supply moves in the same direction as prices !
You own a lemonade stand.
You sell each cup for $0.50
INPUTS (your costs) lemons $0.09 sugar $0.04 cup $0.05 ice $0.02
Cost of Inputs $0.20
Selling Price: $0.50
Minus costs: - $0.20
Profit: $0.30
What happens if one or more of your input costs goes up?
Remember: total supply moves in the same direction as prices !
By raising or lowering the cost of producing goods, the government can encourage or discourage an entrepreneur or industry.
SubsidiesA subsidy is a gov’t. payment that supports a business or industry… can cause the supply of a good to increase. (examples)
TaxesThe gov’t.can reduce the supply of some goods by placing an excise tax on them. An excise tax is a tax on the production or sale of a good. (examples)
RegulationRegulation occurs when the gov’t. steps into a market to affect the price, quantity, or quality of a good. Regulation usually raises production costs. (examples)
Remember: total supply moves in the same direction as prices !
*The Global Economy
The supply of imported goods and services has an impact on the supply of the same goods and services here.
Government import restrictions will cause a decrease in the supply of restricted goods.
*Future Expectations of Prices
Expectations of higher prices will reduce supply now and increase supply later. Expectations of lower prices will have the opposite effect.
*Number of Suppliers
If more firms enter a market, the market supply of the good will rise. If firms leave the market, supply will decrease.
Remember: total supply moves in the same direction as prices !
The Economic Lowdown