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SUPPLY
 Take some time and read pages 148-151 in the textbook
 Identify all vocabulary terms
 Draw figure 13.1 on page 149 in your notes
SUPPLY
REVIEW QUESTIONS
 What is the law of supply?
 Price goes up, supply goes up
 What is the law of demand?
 Price goes up, demand goes down
 What are the determinants of demand?
 Buyers (#), income, tastes, expectations, related goods
SUPPLY
 Consider this: you produce eggs and milk at your farm. Would you produce more eggs or milk if:

You could get higher prices for eggs (market surged)?

Easter is next week?

Eggs are found to reduce heart disease?

The government offered subsidies (cash back) to increase milk production?

You buy a new machine that cleans eggs twice as fast?

NY places a large tax on milk production

The cost of chickens doubles
SUPPLY
 Supply: various quantities of a good or service that producers
are willing to sell at all market prices
 Law of Supply: Producers will produce more goods and services
when prices are high, less when low
 Direct relationship
INTRODUCTION TO SUPPLY
 A supply schedule is a table that shows the quantities producers are willing to supply at various prices
Price per Widget ($)
Quantity Supplied of Widget per day
$5
10
$4
8
$3
6
$2
4
$1
2
GRAPHING SUPPLY
 Just like demand, Price is always on the vertical axis, Quantity is always on the horizontal
 The line that connects the points from a supply schedule are called a supply curve
Supply Curve for Widgets
$6
$5
Price per Widget
$4
$3
Supply Curve
$2
$1
$0
0
2
4
6
Quantity Supplied of Widgets
8
10
What do you notice about the supply
curve?
How would you describe the slope of the
supply curve?
Do you think that price and quantity
supplied tend to have this relationship?
12
CHANGES IN SUPPLY
•Change in the quantity supplied due to a price change
occurs ALONG the supply curve
•At $3 per Widget, the Quantity
•If the price of Widgets
fell of widgets is 6.
supplied
to $2, then the Quantity
Supplied would fall to 4
Widgets.
Supply Curve for Widgets
$6
$5
Price per Widget
$4
$3
Supply Curve
$2
$1
$0
0
2
4
6
Quantity Supplied of Widgets
8
10
12
DETERMINANTS
 The following factors make supply shift in an economy:
 Resource Costs/Cost of inputs
 Expectations about future prices
 Number of firms (includes weather and natural disasters)
 Technology
 Subsidies, taxes, and regulations (government)
FINAL V. INTERMEDIATE
Final goods: The goods that consumers actually purchase, finished products
(ie: cupcakes)
Intermediate goods: goods that are needed to make the finished product
(ie: Flour for cupcakes)
RESOURCE COSTS
 If the costs of your intermediate goods increase so does the cost of final product
 Example: cost of cheese went up, so did the price of a double cheeseburger at
McDonalds
EXPECTATIONS
 Just like consumers have expectations (Ie; black Friday), so do producers
 If prices are expected to increase, producers produce more. If they are
expected to decrease, producers may store their inventory for later
release
 Does not necessarily apply to firms that produce perishable products (ie:
bananas)
NUMBER OF FIRMS
 When another Taco Bell opens in Binghamton, our supply of Tacos just
increased overall
 If Sweet Frog went out of business, there would be a decrease in supply
of frozen yogurt overall
 This determinant applies to the market as a whole, rather than individual
production choices (weather and natural disasters)
TECHNOLOGY
 Technology that allows you to increase your product faster and
cheaper will result in an increase in supply. The opposite is also
true.
 If your technology fails, you aren’t producing anything
SUBSIDIES, TAXES, REGULATIONS
 Subsidy: The government gives you money to produce something (always
leads to increase in supply)
 Taxes: Government takes your money when you produce something
(leads to decrease in supply)
 Regulations: Varies. If there are lots of regulations there will be decrease
in supply. Less regulation, more output.
GRAPHING AN INCREASE SHIFT IN SUPPLY
•Several factors will
change the demand for
the good (shift the entire
demand curve)
Supply
Increase
Curveinfor
Supply
Widgets
$6
$5
$5
$4
$4
Price per Widget
Price per Widget
$6
$3
$3
Original Supply Curve
Supply Curve
$2
$2
$1
$1
$0
•As an example, suppose
that there is an
improvement in the
technology used to
produce widgets.
New Supply Curve
$0
0
2
0
42
4
6
6
8
Quantities
Quantity
Supplied
Supplied
of of
Widgets
Widgets
8
10 10
1212
14
GRAPHING A DECREASE IN SUPPLY
•Supply can also decrease
due to factors other than
a change in price.
$6
$6
$5
$5
$4
$4
Price per Widget
Price per Widget
Decrease in Supply
Supply Curve for Widgets
$3
•As an example, suppose
that a large number of
Widget producers go out
of business, decreasing
the number of suppliers.
$3
Supply Curve
$2
$2
$1
$1
$0
$0
0
2
0
2
4
4
6
6
Quantity Supplied of Widgets
Quantity Supplied of Widgets
8
8
10
10
12
12
Original Supply Curve
New Supply Curve
Price
THE GOVERNMENT OF PAGO-PAGA ADDS A SUBSIDY TO
BOOMERANG PRODUCTION.
S
S1
Quantity
Price
THE GOVERNMENT OF PAGO-PAGA ADDS A NEW TAX TO
BOOMERANG PRODUCTION.
S1
S
Quantity
Price
BOOMERANG PRODUCERS EXPECT AN
INCREASE IN THE POPULARITY OF
BOOMERANGS WORLDWIDE.
S
S1
Quantity
Price
THE PRICE OF PLASTIC, A MAJOR INPUT IN
BOOMERANG PRODUCTION, INCREASES.
S1
S
Quantity
Price
WORKERS ARE INTRODUCED TO COFFEE AND
THEIR PRODUCTIVITY INCREASES
DRASTICALLY.
S
S1
Quantity
YOUR TURN
 Complete the worksheet on supply shifts