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SUPPLY YOU HAVE TO THINK OF YOURSELF AS A BUSINESS OWNER What is Supply? Supply from ‘A’ Apples effects everything What is Supply? TO Z Zebras Supply is the entire relationship Between price and quantity supplied Supply is the other side of the well-known economic “equation” of supply and demand. An economic phenomenon Not all firms produce/supply every product Supply reflects only what suppliers are WILLING and ABLE to offer for sale. SUPPLY REFERS TO THE QUANTITES OF A GOOD THAT PRODUCERS ARE WILLLING AND ABLE TO SELL AT VARIOUS PRICES DURING A GIVEN PERIOD OF TIME LAW of SUPPLY HUMAN NATURE …Desire for Profit… SUPPLY Why is there a direct relationship between price and the quantity supplied. Profit Motive Revenue > Cost of Production = Profit LAW of SUPPLY That the higher the price, the greater the quantity supplied When prices decrease, the quantity supplied is decreased SUPPLY The price of a product or service and the quantity supplied are directly related. P P QS QS QUANTITY SUPPLIED The amount a supplier is WILLING and ABLE to supply at a particular price, at a given time. QUANTITY SUPPLIED CHANGE IN PRICE (of the item) IS MOVEMENT ALONG THE CURVE SUPPLY Supply schedule A list of the quantities supplied at each and every price when all other influences on selling plans remain the same. Supply curve A graph of the relationship between the quantity supplied and the price of the good when all other influences on selling plans remain the same. SUPPLY CHANGE IN PRICE (of the item) IS MOVEMENT ALONG THE CURVE Determinants of Supply A SHIFT IN A SUPPLY CURVE MEANS THAT AT EVERY PRICE, PRODUCERS SUPPLY A DIFFERENT QUANTITY THAN BEFORE Determinants of Supply SHIFT HAPPENS Determinates of SUPPLY Changes in Supply A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes. There is a new supply schedule and a new supply curve. Prices of Resources and Other Inputs Resource and input prices influence the cost of production. Price of inputs Supply Shift Left Price of inputs Supply Shift Right SUPPLY Figure shows changes in supply. 1. When supply decreases, the supply curve shifts leftward from S0 to S1. 2. When supply increases, the supply curve shifts rightward from S0 to S2. Determinants of SUPPLY The main influences on selling plans that change supply are Prices of resources and other Inputs Productivity/Technology Expectations Government tools Number of sellers Prices of related goods (R/S) DETERMINANTS OF SUPPLY Resource costs (input/factor of production (CELL) costs) Other goods’ prices (substitutes in production and joint/related products) Taxes/subsidies and regulations Technology changes Expectation of suppliers Number of suppliers (competition) Determinants of Supply A SHIFT IN A SUPPLY CURVE MEANS THAT AT EVERY PRICE, PRODUCERS SUPPLY A DIFFERENT QUANTITY THAN BEFORE CHANGE IN PRICE (of the item) IS MOVEMENT ALONG THE CURVE A SHIFT IN A SUPPLY CURVE MEANS THAT AT EVERY PRICE, PRODUCERS SUPPLY A DIFFERENT QUANTITY THAN BEFORE PRODUCERS SUPPLY FOR PROFIT $$$$$$$$$$$$$ …PROFIT the amount of money remaining after producers have paid all their costs …PROFIT occurs when revenues are greater than costs of production Cost of production incorporates: Rent/Mortgages Wages and salaries Interest on loans Utility bills (electric, phone) Raw materials Any other goods and services used to manufacture a product $$$$$$$The profit motive has a far reaching effect in free-enterprise markets. It not only governs how individual companies make decisions, it also helps direct the use of resources in the entire market.