Download Unit 3: Supply and Demand

• Supply = the amount of goods generally
available
• Law of Supply
– firms are willing to produce
more as the price goes up
• They can make bigger profits
– firms are not willing to produce as much as the
price goes down
• They don’t make as much profit
• Quantity Supplied
– what the producers are able to produce at a
certain price
– what the producers are willing to produce at a
certain price
• Methods to Increase Supply
– Higher Production
• existing firms increase output
• get more profit
– Market Entry
• new firms enter the market
• they want to get some of those profits
• it looks like a chart
• shows what a firm is willing to produce
when considering
– price
– quantity sold
• Types
– individual supply schedule
• what a single business is willing to supply at different prices
– market supply schedule
• what ALL of the businesses are willing to supply at different
prices
• it looks like a graph
• it gets its data from a supply schedule
• axes
– vertical
• always is Price
• always rises from 0 to highest price
– horizontal
• always is Quantity
• always has zero at left and highest price at right
– slope
• shows the Law of Supply
• rises from left to right
• measures how people react to change in
prices
• if reaction is extreme, it is elastic
• if reaction is slight, it is inelastic
• how time effects reactions
– inelastic supply in SHORT TERM, but can react in
LONG TERM
• agriculture
– must plant more
– must wait for plants to begin to produce
• big businesses (like car manufacturing)
– must get new technology and training
– must wait for new factories to be built
– elastic in SHORT TERM
• small businesses
• service industry
– less capital needed to expand
– less capital needed to enter the market