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Chapter 5.1/5.3/5.4

Chapter 5.1/5.3/5.4. Supply. Intro to Supply. Supply – the amount of a product offered for sale at all possible prices Law of Supply – as P goes up, Qs will go up; or that suppliers usually offer more for sale at higher prices

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Chapter 5.1/5.3/5.4

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  1. Chapter 5.1/5.3/5.4 Supply

  2. Intro to Supply • Supply – the amount of a product offered for sale at all possible prices • Law of Supply – as P goes up, Qs will go up; or that suppliers usually offer more for sale at higher prices • Supply schedule – lists various Q’s of a product supplied at all possible P’s • Supply Curve – graph of the same

  3. 1. An increase in price ... 2. ... increases quantity of cones supplied. Figure 5 Ben’s Supply Schedule and Supply Curve Price of Ice-Cream Cone $3.00 2.50 2.00 1.50 1.00 0.50 Quantity of 0 1 2 3 4 5 6 7 8 9 10 11 12 Ice-Cream Cones

  4. Individual vs. Market S curve • Individual = one producer • Market = Q’s offered at various prices by ALL firms offering the same product

  5. Change in Qs • Change in Qs is the change in amount offered for sale in response to a change in price • Represented by movement along the S curve

  6. $3.00 0 Change in Quantity Supplied Price of Ice-Cream Cone S C A rise in the price of ice cream cones results in a movement along the supply curve. A 1.00 Quantity of Ice-Cream Cones 0 1 5

  7. Change in Supply • When suppliers offer different amounts of a products at all prices • Represented by a shift in the S curve – Increase - right Decrease – left

  8. Supply curve, S 3 Supply curve, S 1 Supply curve, S Decrease 2 in supply Increase in supply 0 Figure 7 Shifts in the Supply Curve Price of Ice-Cream Cone Quantity of 0 Ice-Cream Cones

  9. Reasons for Change in Supply • Cost of Inputs – if P of an input goes down, S increases • Productivity – if working more efficiently, S can increase • Technology – new technology usually increases S • Taxes/Subsidies – increase in taxes would decrease S; adding subsidies can increase S

  10. Cont’d • Expectations – If producers think the P of their product will go up in the future, they may withhold some S now • Gov’t Regulations – more regulations usually mean a decrease in S • # of sellers – If more producers enter market, S increases

  11. Elasticity of Supply • Measures how responsive the Qs is to a change in price based on the producers • Elastic – Change in Qs is larger than change in P (in%) • Inelastic – Change in Qs is smaller than change in P (in%) • Unit Elastic – change in Qs and Change in P are the same proportion

  12. Determinants of S Elasticity • All depends on how quickly a firm can adjust to new prices • If the production process is very complicated, then S is usually inelastic • Supply tends to be more elastic in the long run because firms can adjust more over time

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