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SUPPLY
When we talk about supply we are referring
to the activities of the producer!
Supply: amount producers are willing and
able to produce at each and every price
(the entire curve)
Quantity supplied: amount producers are
willing and able to produce at a certain
price (a point on the curve)
THE LAW OF SUPPLY
• The higher the price of a good, the
more producers will supply (the
higher the quantity supplied) and
vice versa
* Thus we know
that a supply curve
will slope upward
(opposite a demand
curve)
SUPPLY GRAPHS
(AND SCHEDULES)
• Like demand graphs, supply graphs show
the relationship between two variables:
price and quantity (supplied)
• All other factors that could change
production are assumed to remain same
• A rise or fall in price
will cause quantity
supplied to change…
not supply!
SUPPLY GRAPHS
(AND SCHEDULES)
• If price changes, quantity supplied
changes and we move along the
curve
• If a factor other than price changes,
supply changes and we move the
entire curve
CHANGES IN SUPPLY
#1 Cost of resources
• A rise in the cost of resources (land,
labor, capital) to make a good or
service will cause a decrease in
supply and shift the curve to the left
• A decrease in the cost of resources
will cause an increase in supply and
shift the curve to the right
CHANGES IN SUPPLY
#2 Technology
• New technology can lower production
costs and cause an increase in
supply; shift of the curve to the right
CHANGES IN SUPPLY
#3 Government Action: Subsidies,
Taxes, and Regulations
Subsidies: government payment that
supports a business
• If the government provides a
subsidy, it usually causes an increase
in supply
CHANGES IN SUPPLY
#3 Government Action: Subsidies,
Taxes, and Regulations
• Increased (* excise)taxes can cause
a decrease in supply
* Tax on the production/sale of a good
(cigarettes, gasoline, etc.)
• Increased regulation can cause a
decrease in supply
CHANGES IN SUPPLY
#4 Natural Disaster/Other Event
• A hurricane, crop freeze, labor strike
or some other type of event can
cause a decrease in supply
CHANGES IN SUPPLY
* Since the U.S. relies heavily on
imports, our supply is often affected
by events in other countries
ACTIVITY 6: SHIFTS IN
SUPPLY
Supply of Foreign and Domestic Cars in U.S. (start at curve C)
* one no change and factors can be used twice
1. Ford and GM Announce Wage Decreases
Factor ________ Supply _______Curve _____
2. New Robot Increases Efficiency
3. Japanese Auto Strike Began at Midnight (Tokyo time)
4. Auto Prices Rise Due To Inflation
5. U.S. Increases Auto Efficiency Requirements to 35/mpg For All
New Models
6. Glitch in Software Forces Robot Recall
7. Young Design Engineers Commanding Ever-Increasing Salaries
ACTIVITY 6: SHIFTS IN
SUPPLY (start at C again)
* There are two ‘no supply factors, no changes in supply’, but not
because of a change in price…see if you can figure them out!
8. Government Decreases Taxes on Factories
9. Government Reduces Individual Income Taxes to Spur
Economy
10. Government Subsidizes Car Industry To Stimulate
Economy
11. Cost of Steel Rises
12. Commie’s Take Over Factories In Mexico; Transfer
Resources to Military Production
13. Buyers Reject New Models
14. Flood Cleanup Finished; Factories Up and Running
Again
ELASTICITY AND SUPPLY
• Elasticity of supply: measurement of how
producers respond to a price change
• If price changes and quantity supplied
changes dramatically supply is elastic
• If price changes and quantity supplied
changes only a small amount supply is
inelastic
• The main factor is time: initially supply
will be inelastic, but eventually becomes
elastic