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The Wonderful World of….. Supply Essential Standards The student will explain how the Law of Supply works to determine production and distribution in a market economy. The student will define the Law of Supply. The student will identify and illustrate on a graph the factors that cause changes in market supply. The student will define price elasticity of supply. Two Definitions of “Supply” ►Supply—the amount of goods available. ►Quantity Supplied—the amount a supplier is willing and able to supply at a certain price. The Law of Supply An increase in the price of a good or service leads to an INCREASE in the quantity supplied… A decrease in the price of a good or service leads to a DECREASE in the quantity supplied. Price and Quantity Supplied have a DIRECT relationship. Supply Schedule Price per Car Stereo $500 $400 $300 $200 $100 Quantity Supplied 4000 3750 3500 2500 0 Supply Curve P R I C E $600 $500 $400 $300 $200 $100 $0,0 1000 2000 3000 4000 5000 6000 Quantity Supplied Elasticity of Supply Elasticity of Supply—a measure of the way quantity supplied reacts to a change in price. An orange grove owner has an INELASTIC supply. A factory that makes plastic calculators has and ELASTIC SUPPLY. If demand rises, the factory can run 24 hours/day, quickly increasing the supply of calculators. Elastic or Inelastic SUPPLY? Diapers A.) elastic B.) inelastic Walnuts A.) elastic B.) inelastic Engineers A.) elastic B.) inelastic Toasters A.) elastic B.) inelastic Peaches A.) elastic B.) inelastic Doughnuts A.) elastic B.) inelastic Supply Shifts ► ► 1. • 2. • 3. When the entire supply of a product increases or decreases, the supply has SHIFTED. What would cause a product’s supply to shift? Prices of RESOURCES—if the price of lumber rises, the supply of furniture will… Shift to the LEFT. Technology—when Henry Ford perfected the assembly line, the automobile supply… Shifted to the RIGHT. Government actions—taxes; subsidies; regulations. Government Influence-Subsidies Subsidy—a government payment that supports a business or market. With some subsidies, businesses are paid to limit or cease production of certain products. Causing supply to shift to the… LEFT… And with some subsidies, businesses are guaranteed MINIMUM prices for certain products… Causing supply to shift to the… RIGHT. How do subsidies affect the AVERAGE AMERICAN? HIGHER TAXES…. HIGHER PRICES… Or… BOTH. Government Influence--Taxes Excise Tax—a tax on the production or sale of a good. Excise taxes increase production costs by adding an extra cost for each unit sold… And result in a supply shift to the LEFT. They are often used on harmful products, like cigarettes & alcohol. Government Influence--Regulation Regulation—government intervention in a market that affects the production of a good. Regulation increases costs…and lowers supply. Example—when minimum wage is INCREASED… Firms often respond by laying workers off… If a business goes from 80 workers to 65 workers… The supply of their product will shift… To the LEFT. Future Expectations ► Future expectation of prices—if a seller expects the price of a good will rise in the future… ► They will store the good & the supply will SHIFT TO THE LEFT. ► If they expect a price drop, they will sell ► NOW… ► And the supply will… ► SHIFT TO THE RIGHT. Number of Suppliers If more suppliers enter the market… The supply of whatever good they’re selling will…? Shift to the RIGHT. If suppliers stop producing and leave the market… The supply will…? Shift to the LEFT. The future expectation of LOW prices tends to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged. Increases in the cost of raw materials (water, lumber, rubber, etc.) tend to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged. The introduction of new technology tends to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged. Governmental actions like subsidies and taxes tend to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged.
