What is Supply?

SupplySupplyHow many hours do you spend

studying every night?How many hours would you

study if you were paid $1 an hour?

$10 an hour?If you would study more at a

higher price, you are following the Law of Supply.

SupplySupplyWhat is the nature of

demand?Supply is almost the mirror

image of demand.It describes the other half of

the market which provides products for those who demand them.

SupplySupplyDo YOU play a role as producers in the

market?Producers provide services as well as

goods.Does anyone have a part-time job, do

baby-sitting, or household chores for allowance?

Then YOU are a producer supplying an economic product, your labor, to buyers in the marketplace.

SupplySupplyWhen economists consider demand, they are interested in

the desire, ability, and willingness to purchase a product over a wide range of prices.

Remember, economists are concerned with the market as a whole.

Therefore, Supply is the quantity of a product or service that sellers will provide at all possible prices that could prevail in the market.

For example, the supply of TV sets is the number of sets manufacturers will likely produce if the prevailing market is $700, $500, $300, or any other prices.

SupplySupplyEveryone who offers an economic product for sale is a

supplier.YOU will be more willing to supply more labor at a

higher wage than you would for a low one.It is reasonable to predict that the higher the price, the

greater quantity the seller will offer for sale.

SupplySupplySupply Schedule is a listing that

shows the quantity supplied at each and every price.

Supply Curve shows the same information in the form of a graph.

It always slopes upward to the right.This is the opposite of the demand

curve.

SupplySupplyA supply schedule and curve.

The Law of SupplyThe Law of Supply

Thus, the Law of Supply states that the quantity supplied varies directly with its price.

In other words, if prices are high, suppliers will offer greater quantities for sale.

If prices are low, they will offer smaller quantities for sale.

Change in Quantity Supplied

Change in Quantity Supplied

The amount that producers bring to market at any one price is called the quantity supplied.

A Change in Quantity Supplied is the change in amount offered for sale in response to a change in price.

This is shown on the supply curve by a movement along the curve.

Change in Quantity Supplied

Change in Quantity Supplied

For example, 350 T-shirts are supplied when the price in $30.If the price decreases to $24, 300 T-shirts are supplied.If the price then changes to $21, 240 T-shirts are supplied.These changes illustrate a change in the quantity supplied.

Change in SupplyChange in SupplySometimes producers offer different amounts of

products for sale at all possible prices in the market. This is known as a Change in Supply.

This is shown on the supply curve by a shift in the entire curve.

Change in SupplyChange in SupplyReasons for change in supply:1. Cost of Inputs – In the T-shirt example, if the cost of

ink or cotton goes down, then producers can produce more t-shirts at each and every price. The supply curve would shift right.

If the cost of inputs increases, producers would not be willing to produce as many shirts at each and every. The supply curve would shift left.

Change in SupplyChange in Supply2. Productivity – If management trains workers to be

more efficient then productivity increases.The supply curve shifts to the right because more

shirts are produced at every possible price in the market.

Change in SupplyChange in Supply3. Technology – New technology almost always shifts

the curve to the right.The introduction of a new machine, chemical, or

industrial process can affect supply by lowering the cost of production.

New technology does not always work as expected. Equipment might break down or parts may be difficult to obtain.

Change in SupplyChange in Supply4. Number of Sellers – The supply curve represents

all producers. Thus, when new suppliers enter the market supply increases, or shifts to the right.

If some sellers leave the market, fewer products are offered for sale at all possible prices.

Supply decreases, and the supply curve shifts to the left.

Change in SupplyChange in Supply5. Taxes and Subsidies – They have the same

impact as cost of inputs.If the producer’s inventory is taxed, the cost of

production increases. (Shift to the left) If the government provides subsidies, the cost of

production decreases. (Shift to the right)

Change in SupplyChange in Supply6. Expectations – The anticipation of future events. If

producers expect future price increases, they will withhold some of the supply, shifting the curve left.

If producers expect future price decreases, they will flood the market, shifting the curve right.

Change in SupplyChange in Supply7. Government Regulations - When government

places mandates on producers, the cost of inputs increases, shifting the curve to the left.

For example, when government mandates new auto safety features such as stronger bumpers, air bags, and emission controls, cars cost more to produce.

Change in SupplyChange in SupplyWhat do you think happens to the supply curve in

the following situations and why?1. Cost of materials used to make CDs fall.(Shifts to right because supply increases because

price of inputs falls.)2. New training methods improve worker

efficiency.(Shifts to right because supply increases due to

increased productivity.)

Change in SupplyChange in Supply

3. Innovative process for pressing CDs introduced.

(Shifts to right because supply increases because new technology lowers production costs.)

4. Leading CD producer goes out of business.(Shifts of left because supply decreased by

suppliers leaving the market.)

Supply ElasticitySupply ElasticityJust as demand has elasticity, there is elasticity of

supply.Supply Elasticity tells how much a change in price

affects quantity supplied.Products that require large amounts of money and

technology to change production tends to be Inelastic.

Products made quickly without large amounts of money and technology is elastic. (Candy and toys)