Download The Marketplace: Supply

The Marketplace: Supply
Review
 What is a Market?
 What things must a government provide for a market
to work?
 Why?
Law of Supply
 Supply is the seller’s plan for the amount of a
product that would be offered for sale at different
prices in a defined time period.
 Law of Supply – states that price and the quantity
supplied are directly related. As prices rise the
quantity supplied will also rise.
Supply curve
Law of Supply
 Why?
 Profit Incentive – producers would be able to make more profit
from goods sold at higher prices
 Substitution – if producers can produce more than one type of
good, they will naturally produce the good that makes them the
most profit.
What causes a
shift?
Anytime one of the
other factors change,
supply will shift.
Supply Determinants
 Other than price, what things determine Supply?
 Costs of Production (Land, Labor, and Capital)
 Technology (increased efficiency)
 Number of firms (more companies in the market= greater
competition)
 Taxes and Subsidies (Ford vs. Toyota)
 Expectations
 If all these remain constant, then supply is a function
of price.
Elastic Demand
 Price Elasticity of Demand
 Explains how the demand for a good will change with a change
in price.
 What determines how elastic demand for a good will
be?



Availability of substitutes
Importance of the product in a consumer’s budget
Time period allowed for adjustment
Elastic Supply
 Price Elasticity of Supply
 Explains how the supply will change with a change in price.
 What determines how elastic supply will be?
 Time
Market-run (Time period so short that supply is fixed)
 Short-run (Plant capacity is fixed. Supply can vary from zero, to
full capacity)
 Long-run (Additions to capacity possible. Nothing is fixed)

Supply and Demand
Supply and Demand
 Market/Equilibrium
Price – price at which
supply and demand
meet.
 Market filters out all
buyers unable to pay
price P.
 Market filters out all
suppliers whose costs
exceed P.
Surplus
 Price above will result in
a surplus
 To eliminate the surplus
(extra inventory) the
seller must lower the
price to the market price.
 How do sellers do this?
Surplus
Shortage
 Price below will result in
a shortage
 To eliminate the
shortage, the seller must
raise the price to the
market price.
 How do sellers do this?
Shortage