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WHAT IS SUPPLY?
CHAPTER 5
Chapter 5
WHAT IS SUPPLY?
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VOCABULARY
Supply
Law of Supply
Supply Curve
Market Supply Curve
Subsidy
Supply Elasticity
Supply Schedule
“The concept of supply is based on voluntary decisions made
by producers, whether they are proprietorships working out of
their homes or large corporations. A producer might decide to
offer one amount for sale at one price and a different quantity
at another price. SUPPLY, then is defined as the amount of a
product that would be offered for sale at all possible prices that
could prevail in the market” (Clayton, 2008, p. 117).
To access this activity, you will need a computer or tablet that can run
flash.
Click HERE to play the Supply and Demand Activity.
This activity will help demonstrate what happens when the
price for burritos changes. Be sure to pay close attention to
what happens in each scenario.
SECTION 1
The Law of Supply
“Because producers receive payment for
their products, it comes as no surprise that
they will offer more at higher prices. This
forms the basis for the LAW OF SUPPLY,
the principle that suppliers will normally
offer more for sale at high prices and less at
lower prices” (Clayton, 2008, p. 117).
Click HERE to watch the short video on how the law of supply and
demand works.
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Click HERE to watch a short video about how the law of
supply works.
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S E C T I O N 1 C O N T. . .
Supply Curve
“To draw a supply curve, all we do is transfer each of the price-quantity observations in the schedule
over to the graph, and then connect the points to form the curve. The result is a SUPPLY CURVE,
a graph showing the various quantities supplied at all possible prices that might prevail in the market
at any given time” (Clayton, 2008, p. 118).
Supply Schedule
“The SUPPLY SCHEDULE is a listing of the various
quantities of a particular product supplied at all possible
prices in the market. Panel A of Figure 5.1 presents a
hypothetical supply schedule of CDs. It shows the
quantities of CDs that will be supplied at various prices,
other things being equal.
Click HERE to watch a short video about supply curves and
schedules
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The Market Supply Curve
“The supply schedule and curve in Figure 5.1 show the information for a single firm. Frequently,
however, we are more interested in the MARKET SUPPLY CURVE, the supply curve that shows the
quantities offered at various prices by all firms that offer the product for sale in a given market” (Clayton, 2008,
p. 119).
Market Supply Curve video explanation
To access this video, you will need a computer or tablet that can run flash.
The market supply curve shows the quantities supplied by all firms that offer the product for sale
in a market. Point a on the market supply curve represents the four CDs that Firm A would
supply and the two CDs that Firm B would supply, at a price of $15, for a total of six CDs.
(Clayton, 2008, p. 119)
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S E C T I O N 1 C O N T. . .
Subsidy
“A SUBSIDY is a government payment to an individual, business, or other group to encourage or protect a certain type of economic activity. Subsidies lower the cost of production, encouraging current producers to remain in the market and new producers to enter. When subsidies are repealed, costs go up,
producers leave the market, and the supply curve shifts to the left” (Clayton, 2008, p. 122).
Click HERE to watch a short video about what happens when
a subsidy is removed.
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Elasticity of Supply
“Just as demand has elasticity, supply also has elasticity. SUPPLY ELASTICITY is a measure of the way in
which the quantity supplied responds to a change in price. If an increase in price leads to a proportionally
larger increase in output, supply is elastic. If an increase in price causes a proportionally smaller change in
output, supply is inelastic. If an increase in price causes a proportional change in output, supply is unit
elastic” (Clayton, 2008, p. 124).
Click HERE to watch a video explaining how elasticity works
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S E C T I O N 1 C O N T. . .
Chapter 5 Review
Review 1.1 Chapter 5 Review
Question 1 of 4
A graph showing the various quantities of a product that a single producer supplies at each and
every price in the market is a...
A. supply schedule
B. supply curve
C. change in supply
D. supply elasticity
Check Answer
To access this activity, download this document from the iBook Store.
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SECTION 5
References
• Clayton, G. E. (2008). Economics: Principles and practices. New York, NY, USA: Glencoe.
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LAW OF SUPPLY
principle that more will be offered for sale at higher prices than at lower prices
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Index
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Chapter 1 - The Law of Supply
MARKET SUPPLY CURVE
a graph that shows the various amounts offered by all firms over a range of
possible prices
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Index
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Chapter 1 - Market Economy
SUBSIDY
government payment to encourage or protect a certain economic activity
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Chapter 1 - Subsidy
SUPPLY
amount of a product offered for sale at all possible prices
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Chapter 1 - What is supply?
SUPPLY CURVE
a graph that shows the different amounts of a product supplied over a range of possible prices
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Index
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Chapter 1 - Market Economy
SUPPLY ELASTICITY
a measure of how the quantity supplied responds to a change in price
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Index
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Chapter 1 - Subsidy
SUPPLY SCHEDULE
a table showing how much a producer will supply at all possible prices
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Index
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Chapter 1 - Market Economy