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Supply and Demand
We have learnt that demand is the amount of a good or service consumers
are willing to buy. The opposite of demand is supply. Supply is how much
of a good or service a producer (a business) is able and willing to make for
sale to consumers. The law of supply says that when the price of a good
or service rises, the producer (the business) will want to make or produce
more of that good.
Why would a producer want to make more of something when prices rise?
Profit! The higher the price a producer can sell a good for, the higher the
profit they will most likely earn. Hence, the business will want to make more
of that good. Profit serves as an incentive (encouragement); it encourages
a business to produce more of a good as prices rise. The bigger
opportunity to make more profit, the more incentive a company has to
figure out how to make more of something. However, if the price of a good
falls or decreases, there is less of an incentive to make more of it. A
business can’t survive if they are not making a profit. Therefore, the law of
supply also states that as a price of a good or service falls, producer will
make less of it.
Answer each question with a complete sentence on a separate piece of paper.
1. What is the opposite of demand?
2. What does supply mean?
3. What does the law of supply say?
4. Why does a producer (a business) want to make more of a good when prices rise?
5. What does profit serve as for a business?
6. The bigger the opportunity for a business to make more profit, will lead to what?
7. If the price of a good decreases, what happens with the incentive to produce the
good?
© 2015 Michael Powell, All Rights Reserved
Farmers serve as a
great example of
how the law of
supply works. For
instance, if a
farmer is able sell
his tomatoes for $5
dollars a basket,
he would be willing
to work his land to
produce 100
baskets. However,
if the price of
tomatoes goes up
to $10 a basket,
the farmer now has
an incentive to
make more money
(profit). Therefore,
he will try and
figure a way to
produce even more tomatoes, more than the 100 baskets. To do this, he may
worker harder, work more hours, use more land to grow more tomatoes, hire
help, or even buy better equipment. But, what if the price for a basket of
tomatoes falls to $3.00 a basket? The farmer will now decide to decrease the
production of tomatoes because there is a lack of an incentive to grow so
many. He may even begin to grow another crop that is more profitable.
8. Who serves as a great example of how the law of supply works?
9. If the price of tomatoes increases, what will the farmer decide to do?
a. Why would he do this?
10.What might the farmer do in order to be able to produce more
tomatoes?
11.What would the farmer decide to do if the price of tomatoes drops?
a. Why would he do this?
© 2015 Michael Powell, All Rights Reserved
Just like demand, supply can also be shown in a chart and graph. Below is
a supply curve schedule for Ipads and supply curve graph.
Supply Schedule for Ipads
Price for one Ipad.
$400
$600
$800
$1000
The amount (quantity) of
Ipads supplied.
10 = is the amount the
business (Apple) will be willing
to make and supply.
15
20
25
Looking at the supply curve graph above, you can see that as the price of
an Ipad increases, the business is willing to supply more of them. At $1000
per Ipad, the business is willing to supply 25 Ipads.
12. What is the CHART called that shows the supply of Ipads depending on their
price?
13. What is the graph called that shows the quantity of Ipads that Apple is
willing to supply at a certain price.
14. If the price for Ipads decreases to $400 dollars each, how many will Apple be
willing to supply?
15. As the price for Ipads increase, what is Apple going to do with supply?
© 2015 Michael Powell, All Rights Reserved
Supply Curve Shift
Price is not the only factor that influences the amount of a good that a
producer is willing to make. There are several other factors that change
how much of a good a business will supply.
The Cost of Production
The cost of production of a good is one of the most important things that
can affect supply. The cost of production is how much it costs to make
something.
When It Cost More to Make a Good:
If the cost of any of the resources, such as labor or materials, that it takes
to make a good increase, it will cost the business more to produce it.
When it cost a business more to make a good, its profits decrease. This
decrease in profits causes the business to make less of the good; it will
decrease supply. Therefore, anytime the cost of production of a good
increases, a business will most often decide to decrease the supply.
When it Cost Less to Make a Good:
Sometimes, the cost of production of a good can decrease or become
cheaper. If it cost less to make something, then a business will want to
make more of that good. Often, a lower cost to make something means
bigger profits. And as we have learned, a potential of making more profit
encourages a producer to increase supply.
Answer each question with a complete sentence on a separate piece of paper.
1. Beside price, what is one of the most important factors that can affect supply?
2. What does the cost of production mean?
3. What does an increase in the cost of production do to profits?
4. A decrease in profit will lead a business to do what with supply?
5. An increase in the cost of production of a good, will lead a business to do what
with supply?
6. What does a lower cost to make a good mean for a business?
7. What will a decrease in the cost of production cause a business to do with supply?
© 2015 Michael Powell, All Rights Reserved
Supply Curve Shift
New Technology
The introduction of new technology can also affect
the amount of supply a business will produce. The
use of new technology will almost always lower
the cost to make something. And as mentioned
before, the lower the cost to make something, the
bigger the profit will be for a business. As we
already know, businesses love bigger profits; it is
their incentive to increase supply.
Tax and Subsidies
If the government imposes a tax on a business,
then it will increase the cost of production for
them. And, as we have learned an increase in the
cost to make something, decreases profit for a
business and leads them to decrease supply.
Sometimes, the government decides to provide a
subsidy to a business. A subsidy is extra money
or a grant given to a business. The subsidy serves
as an incentive for a business to increase supply.
Competition
Businesses compete with each other in the market. The number of
businesses competing to make a type of good will affect the amount of a
good supplied. More competition leads to an increase in supply. However,
when there is less competition or no competition, there is a decrease in
supply.
8. What does new technology almost always do?
9. If new technology lowers the cost of a good, what will occur with supply?
10. If the government taxes a business, what happens with the business’s cost
to produce a good?
11. A tax on a business, will cause what with supply?
12. What is a subsidy?
13. How will a subsidy affect supply?
14. When it comes to competition, the number of what will affect supply of a
good?
15. What would more competition do to supply?
16. What would less competition do to supply?
© 2015 Michael Powell, All Rights Reserved
Key Factors that Change Supply and Shift the Supply
Curve Line
Factors that cause an decrease
in supply (line shifts to left)
Cost of production increases
taxes
Less competition
Factors that cause an increase in
supply (line shifts to the right)
Cost of production decreases
Subsidies
More competition
New technology
Supply Curve Shift
One or more of the factors that can change supply will cause the supply
curve line to shift. If one of the factors causes an increase in supply, the
supply curve will shift to the right. If there is a decrease in supply, the line
will shift to the left.
17. What do these important factors that can change supply cause the supply curve to
do?
18. If there is an increase in supply, which direction does the supply curve shift?
19. If there is a decrease in supply, which direction does the supply curve shift?
20. If the cost of production increases, will there be a decrease or increase in supply?
a. In which direction will the supply curve shift?
21. In which direction would higher taxes on a business cause the supply curve to
shift?
a. Would there be a decrease or increase in supply?
22. In which direction will more competition shift the supply curve?
23. How would new technology for a business change supply?
a. In which direction would it shift the supply curve?
© 2015 Michael Powell, All Rights Reserved
Name_______________________
Per.______ Date:_____________
Supply Curve Graph
Directions: Use the supply schedule below to graph a supply curve for Steve’s
Farm Tomatoes in the blank graph provided and answer the related questions.
Supply Schedule for Steve’s Farm Tomatoes
Price for One Basket of Tomatoes
$4
$6
$ 10
$ 12
© 2015 Michael Powell, All Rights Reserved
The Amount (Quantity) of
Baskets of Tomatoes Supplied.
10
40
70
100
Supply Curve Graph
Using the supply graph you have created and what you have learned,
answer each of the questions below.
1. If the price for a basket of tomatoes is $6, how many baskets will
Steve’s Farm supply?
2. As the price for tomatoes increases, what occurs with Steve’s
Farm willingness to supply them?
3. If the price for a basket of tomatoes is $10, how many baskets
will Steve’s Farm supply?
4. As the price for tomatoes decreases, what will occur with
Steve’s Farm willingness to supply tomatoes?
5. If prices for tomatoes falls to $2 a basket, what will Steve’s Farm
most likely decide to do?
6. When Steve’s Farm decides to increase supply because of a
major price increase, how might the farm increase its production?
© 2015 Michael Powell, All Rights Reserved
Name________________________
Per._____ Date:_______________
Directions: Using the supply schedule below, graph a supply curve for Famous
Jake’s Donuts in the blank graph provided and answer the related questions.
Supply Schedule for Famous Jak’s Donuts
Price for One of Jake’s Donuts
If the price for one donut is $1
$2
$3
$4
$5
The Amount (Quantity) of Donuts
Supplied
5 = is the amount of donuts Jak’s
is able and willing to make.
10
15
20
40
Supply Curve
Famous Jake’s Donuts
Quantity Supplied
The amount of donuts Jak’s will supply.
© 2015 Michael Powell, All Rights Reserved
Using the supply graph you have created and what you have learned,
answer each of the questions below.
1. If the price for a Famous Jak’s donut is $1.00, what would be the
amount of donuts Jake’s would be willing to supply or make?
2. What if the price for a donut is $3.00, how many would Jak’s be
willing to supply?
3. What if the price for a donut is $5.00, how many would Jak’s be
willing to supply?
4. As the price for a donut increases, what happens with the
amount Jak’s is willing to supply?
5. As the price for a donut decrease, what happens with the
amount Jak’s is willing to supply?
6. If the price for a donut was only 20 cents, how many do you
think Jak’s would be willing to supply?
© 2015 Michael Powell, All Rights Reserved
Name________________________
Per._____ Date:_______________
Directions: Using the following supply schedule, create a supply curve graph.
Make sure to label all parts of the graph and answer related questions.
Supply Schedule for Little John’s Burgers
Price for One of Little John’s Burgers
$4
$6
$8
$ 10
$ 12
© 2015 Michael Powell, All Rights Reserved
The Amount (Quantity) of Burgers
Supplied.
10
15
25
30
40
Using the supply graph and what you have learned, answer each of the
questions below
1. As the price of John’s burgers increases, what happens with the
supply?
2. What happens with the supply of burgers, if the price drops?
3. If there was an increase the production cost of making a burger,
what would occur with the amount supplied?
a. Would this change cause the supply curve to shift to the
right or left?
4. What would happen to the supply of burgers in the city, if three
more burger restaurants opened up by Little John’s Burgers?
a. Would this change cause the supply curve to shift to
the left or right?
5. What if the government decided to place a high tax on all
restaurants that serve burgers, what would happen with supply?
a. Would this cause the supply curve to shift to the right or
left?
6. What would occur with the supply of burgers, if Little John’s
bought some new technology that made his burgers cheaper
and faster?
a. Which way would the supply curve shift?
© 2015 Michael Powell, All Rights Reserved
Name_______________________
Per.______ Date:_____________
Supply Curve Shift
Label the different parts of the supply curve below.
Increase in supply
Decrease in supply
Quantity of Ipads Supplied
Price of Ipads
Complete the chart below using each one of these terms:
Taxes
Subsidies
Decreases in the Cost of production Technology
Line shifts to the right
Decrease in competition
Key Factors that Change Supply and Shift the
Supply Curve Line
Factors that cause an decrease
in supply (line shifts to left)
Increase in the Cost of production
2.
5.
© 2015 Michael Powell, All Rights Reserved
Factors that cause an increase in
supply (4.___________________)
1.
3.
Increase in competition
6.
Name_______________________
Per.______ Date:_____________
1.Supply is
a. how much consumers are willing to
buy.
b. how much a producer (a business) is
able and willing to make for sale to
consumers.
c. the goods that are left over after a
sale.
d. All of the above.
5.When the cost of production increases for a
good, it will lead to an
a. increase in supply.
b. increase in profit.
c. decrease in supply
d. none of the above.
6.If the government imposes a tax on a
business, the business will most likely
2.The law of supply says
a. increase supply.
a. A producer (a business) will supply less
b. refuse to pay the tax.
as prices of a good increases.
c. decrease supply.
d. do nothing with supply.
b. A producer will supply more as prices
of a good decrease.
c. A producer will supply more as prices
of a good increase.
7.If the government provides a subsidy (a
d. None of the above.
grant/free money) to a business, it will most
likely
3.For businesses, profit serves as
a. increase supply.
a. a discouragement to supply more of a
b. refuse the subsidy.
good.
c. decrease supply.
b. an incentive to supply more of a good.
d. do nothing with supply.
c. an encouragement to make less of a
good when prices increase.
d. None of the above.
8.An increase in competition, will lead to a
a. a decrease in supply.
4.Beside price, what is one of the most
b. an increase in supply
important factors that can affect supply?
c. No change in supply
a. Cost of production
d. All of the above.
b. Government
c. Weather
d. None of the above
© 2015 Michael Powell, All Rights Reserved
Assessment
9.The cost of production, taxes,
competition, subsidies, new technologies
can cause
a. the supply curve line to disappear.
b. the supply curve line to shift to the
right or left.
c. no change in the supply curve line.
d. All of the above.
10. The use of new technology by a business,
will usually lead to
a. a decrease in supply and shift the
supply curve to the left.
b. an increase in supply and shift the
supply curve to the left.
c. an increase in supply and shift the
supply curve to the right.
d. None of the above.
Subsidy
Incentive
The Law of Supply
Producers
Supply Curve Shift
Supply
11._______________ something that motives or encourages.
12. _______________when the price of a good or service rises, the producer will want to make or
produce more of it.
13. _______________extra money or a grant given to a business.
14. _______________ a business that makes a good or service.
15. _______________when the supply curve line shifts to the right or left.
16. _______________the amount a producer is able and willing to make.
True and False
17.___________The greater opportunity to make profit, the more incentive a
company has to figure out how to make more of something.
18.___________If the price for sale of a good falls or decreases then there is
more of an incentive to make more of it.
19___________When is cost less for business to make a good, it will increase
supply.
20.___________The use of new technology will almost always increase the
cost to make something.
© 2015 Michael Powell, All Rights Reserved
Assessment
Label the different parts of the supply curve below.
Increase in supply
Decrease in supply
Quantity of Ipads Supplied
Price of Ipads
Use the supply schedule to the right to create a supply curve graph. Make sure to label all
parts of the graph.
Supply Schedule for
Cindy’s Farm Tomatoes
Price for One
The Amount
Basket of
(Quantity) of
Tomatoes
Baskets of
Tomatoes
Supplied.
$4
10
$6
20
$8
60
$ 10
80
© 2015 Michael Powell, All Rights Reserved
Answer Key
1. B 2. C 3. B 4. A 5. C 6. C 7. A
8.B 9. B 10. C
11. Incentive
12. The Law of Supply
13. Subsidy
14. Producer
15. Supply Curve Shift
16. Supply
17.
18.
19.
20.
© 2015 Michael Powell, All Rights Reserved
True
False
True
False