Download Nature of Supply

Nature of Supply
Supply—is the quantity of goods and
services that producers are willing to
offer at various prices during a given
time period.
 The Quantity Supplied—is the amount
of a good or service that a producer is
willing to sell at each particular price.

The Law of Supply
Law of Supply—States that producers
supply more goods when they can sell
them at higher prices and fewer goods
when they must sell them at lower
prices.
 Why?

Profit
Profit—The amount of money remaining
after producers have paid for all their
costs.
 Costs of Production—Include wages,
rent, interest on loans, utility costs, raw
materials, used to manufacture a
product.

Profits and Markets
Profit motive helps direct the use of
resources in the entire market.
 Ex. Sell bicycles for $150 and company
increases production(supply).

Encourages competition to increase its
supply of $150 bikes.
 Encourages new companies to start up.
 All are pursuing profits!

Supply Schedules and Curves

Supply Schedule—Tool that shows the
relationship between the price of a good and
the quantity producers will supply.
 Supply Curve--Plots on a graph the
relationship between the price of a good
supplied and the quantity producers will
supply.
 Note: Supply curve always slopes upward.
 Note: Demand curve always slopes
downward.
Elasticity of Supply


Elasticity of Supply—is the degree to
which price changes affect the quantity
supplied.
Elastic Supply—Exists when a small
change in price causes a major change
in the quantity supplied.
Elastic Supply

1.
2.
3.


Products with elastic supply can be:
Made quickly
Inexpensively
Use a few readily available resources
Sports teams apparel—tee shirts,hats
Ex. Super Bowl championship

Demand soars, prices rise, supply
increases.
Inelastic Supply


Inelastic supply—exists when a
change in a goods price has little
impact on the quantity supplied.
Inelastic supply if production requires:
Time
2. Money
3. Resources not readily available
Ex. Gold, fine art, space shuttles, etc.
1.
Inelastic Supply

Perfect inelastic supply exists when
producers, regardless of price, cannot
increase the quantity supplied.
Ex. Ocean front lots
 10 lots to sell—regardless of price
 Can charge more $ but cannot produce
more ocean front lots.
