Download File - Mr. Cooper Econ

Introduction to
Supply
Supply: The Basics
Producers often offer a certain
amount of a product at one
price and a different
amount at another (selfinterest)
I. Supply
A. Supply: the amount of
goods that are available
B. Quantity supplied: how
much of a good is offered
at a specific price
Obviously prices
effect how much
we faceless
business men
supply to
consumers.
States that the quantity supplied (Q) of a
good/service and the price (P) of the good have
a direct relationship
A. Price goes up, quantity supplied goes up;
price goes down, quantity supplied goes down
P:
Q:
P:
Q:
Supply Curve
Price
Quantity Supplied
III. What drives supply?
A. Possibility of making a profit!
B. More Producers will enter the
market if there is a greater chance
of making profit (if prices are
higher) + current producers will
offer more product

Is this greed? Do our laws of
economics function off of the idea
that greed is natural?
Definitions
4. Supply Schedule: a table that lists the
quantity of a good or service that
producers are willing and able to offer at
particular prices
Supply Schedule
Price per pair
of Shoes
$60.00
Quantity
Supplied
4,750
A
$50.00
3,750
B
$40.00
3,000
C
$30.00
2,250
D
$20.00
1,500
E
Definitions
5. Supply Curve: a graphic illustration of a
supply schedule
Supply Curve
P
70
● A
60
50
$
40
● C
30
●
B
● D
20
●
E
10
0
S1
1
2
3
4
5
Pairs of Shoes (Thousands)
Q
Supply Schedule for T-Shirts
Demand Schedule for T-Shirts
Price
Quantity
Supplied
Price
Quantity
Demanded
$30
8
$30
4
$25
7
$25
6
$20
6
$20
7
$15
4
$15
8
IV. Change in Quantity Supplied: change in the
amount offered for sale in response to a
change in price.


Quantity supplied can increase or decrease
depending on the price change.
ex. When the economy collapsed in late
summer of ’08, price of oil dropped from
close to $4 a gallon to around $1.85. OPEC
responded to this by producing less oil.
V. Shifts of Supply Curve
A. A change in the
OVERALL supply results
in a shift of the supply
curve
B. Increase in supply =
shift to right
C. Decrease in supply =
shift to left
1. Shifting supply means that at every price
point the supply has changed (moves the
demand graph to the left or to the right)
2. Quantity supplied is a change in the quantity
based on a change in PRICE of that item
(movement along the demand graph)
A. Production Costs
i. Resource prices: major
components of production costs
-increase in resource prices,
decrease in supply (shift left)
ii. Technology: new technology
can lower production costs and
increase supply (shift right)
iii. Taxes: add to production
costs, reduces supply (shift left)
iv. Subsidies (incentives given by
the gov): lower costs and increase
supply (shift right)
B. Changes in prices of related
goods
E.g. lower price of wheat
may cause farmers to
produce more corn (shift
right for corn)
C. Supplier Expectations
E.g. if price expected to rise in
the future, decrease supply now
and wait for higher prices (shift
left)
D. Number of suppliers: more
producers means more goods
and services (shift right)
Dang,
everyone is
selling
bootlegged
Bieber CDs
E. Nature/Random Shocks: weather,
earthquakes, wars, labor disputes


Change in Price = change in Quantity
Supplied = movement ALONG the curve
Change in something else = change in
Supply = movement of ENTIRE curve
A. Elastic supply = changes in price have large
effect on quantity supplied
Math: % change in quantity
supplied is greater than %
change in price
i.
Elastic Supply Items:
products that can be
quickly
produced/offered
without much additional
cost (e.g. gasoline, jolly
ranchers, etc)

B. Perfect Elastic Supply
– if price drops
quantity supplied will
drop to 0.
◦ Only feasible
circumstance is if
product has thousands of
substitutes, so any price
change would ultimately
result in all consumers
going somewhere else.
C. Inelastic supply =
changes in price have less
effect on quantity
supplied
Math: % change in price is
greater than % change in
quantity supplied
i. Inelastic Supply Items –
items that are not easily
produced/offered
e.g. Houses, artwork,
antiques, supercomputers

D. Perfect Inelastic
Supply – quantity
supplied will remain
constant regardless of
price
◦ Think items that are
nearly impossible to
replicate (e.g. Mona Lisa)

E. Unitary Elastic Supply
= increase in price and
quantity supplied are
proportional
◦ Math = % change in price
= % change in quantity
supplied
VII. Factors Affecting Elasticity
A. Availability of Resources
B. Time and complexity of
production
C. Supplier Inventory
◦ Eg. Orange prices go up, how
quickly can the producer
respond to that and provide
more oranges?
 Plant more trees, use new
fertilizer (takes time)
Grow!!! You
little jerk,
prices are
sky high
Perfect, we had all these
hats left over from last
Halloween and they are so
◦ How about haircuts?
HOT right now for Cinco de
 Hire more workers immediately
Mayo