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Understanding Supply

Understanding Supply. Chapter 5.1. What Supply Means in Economics. Supply is the willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period. You Make the Call!!.

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Understanding Supply

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  1. Understanding Supply Chapter 5.1

  2. What Supply Means in Economics • Supply is the willingnessand abilityof sellers to produce and offer to sell different quantities of a good at different prices during a specific time period

  3. You Make the Call!! • Suppose you are a supplier, or producer, of TV sets, and the price of a set rises from $300 to $400. • Would you want to supply more or fewer TV sets at the higher price?—think about your willingness and ability to supply labor! Most people say MORE! • If you did you instinctively understand the law of supply!

  4. What is the Law of Supply? • The law of supply states that as the price of a good increases, the quantity supplied of the good increases, and as the price of a good decreases, the quantity supplied of the good decreases Law of Supply: If P then Qs If P then Qs Where P = price and Qs = quantity supplied

  5. Law of Supply VS. Law of Demand Law of Demand: If P  then Qd If P  then Qd Law of Supply: If P  then Qs  If P  then Qs 

  6. Supply versus Quantity Supplied • Remember: “supply” refers to the entire line! • Quantity supplied refers to the number of units of a good produced and offered for sale at a specific prices • “quantity supplied” refers to an amount on the line!

  7. Illustrating the Law of Supply Cont. • A supply curve is a graph that shows the amount of a good sellers are willing and able to sell at various prices

  8. A Firm’s Supply Curve and a Market Supply Curve • Most of the goods supplied in the United States are supplied by business firms • Dell, Boeing, Heinz, Nike, etc. • A firm’s supply curve is what it sounds like: it is the supply curve for a particular firm • A market supply curve is the sum of all firms’ supply curves

  9. P S P2 Q A Vertical Supply Curve • The law of supply, which holds that as price rises, quantity supplied rises, does not hold true for all goods; nor does it hold true over all time periods • Goods that cannot be produced anymore—Antonio Stradivai’s violins • Sold out concerts • Beachfront property P1 P rises by 10% Q1 Q changes by 0%

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