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Supply. Price Effect Market Supply Price Elasticity Change in Supply. Supply. The various amounts of something a producer is willing and able to sell at different prices at a given time General rule: Sell a lot at a high price Sell a little at low price. S. Price. Quantity.
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Supply Price Effect Market Supply Price Elasticity Change in Supply
Supply • The various amounts of something a producer is willing and able to sell at different prices at a given time • General rule: • Sell a lot at a high price • Sell a little at low price
S Price Quantity
Law of Supply • Other things equal, as price rises the quantity supplied rises • Explanations: • Revenue implications • Marginal cost 3-4
Price Effect • As price changes, quantity supplied changes • As each new quantity supplied is added, the marginal cost of production increases • Thus, as quantity goes up, so does the price and vice versa • Price Effect: price changes effect quantity changes
S Price Quantity
Market Supply The sum of all individual supplies in a given market at a particular time All suppliers of a given product included in the figures given
Change in Supply • Change in supply results in quantity changes at all prices (a new line is drawn on the graph)
S1 S2 Price Quantity S1 to S2 = Increase in Supply
S2 S1 Price Quantity S1 to S2 = Decrease in Supply
Determinants of Supply • Resource prices • Technology • Taxes and subsidies • Prices of other goods • Substitutes & Compliments • Producer expectations • Number of sellers 3-11
Individual Supply Supply Can Increase or Decrease P 6 5 4 3 2 1 0 S3 Individual Supply S1 Change in Quantity Supplied S2 P Qs $5 4 3 2 1 60 50 35 20 5 Price (per bushel) Change in Supply Q 10 20 30 40 50 60 70 Quantity Supplied (bushels per week) 3-12
Price Elasticity • The degree in which price changes effect quantity supplied • Small price changes that effect quantity supplied A LOT is elastic • Small price changes that have little to no effect on quantity supplied is inelastic
Two Reasons for Elasticity: • Availability of Inputs • Adjust for time • Examples: • Pizza: Elastic (availability of inputs) • Flu Vaccine: Inelastic (adjust for time)
S Price Inelastic P2 Big Change P1 Q1 Q2 Quantity Small Change
Elastic Price S P2 Similar Change P1 Q1 Q2 Quantity Similar Change