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Unit 2: Supply, Demand,
and Consumer Choice
Can you
see me?
1
Supply
2
Supply Defined
What is supply?
Supply is the different quantities of a good that sellers
are willing and able to sell (produce) at different prices.
What is the Law of Supply?
There is a DIRECT (or positive) relationship between
price and quantity supplied.
•As price increases, the quantity producers make
increases
•As price falls, the quantity producers make falls.
Why? Because, at higher prices profit seeking
firms have an incentive to produce more.
EXAMPLE: Mowing Lawns
3
Example of Supply
You own an lawn mower and you are
willing to mow lawns.
How many lawns will you mow at these prices?
Supply
Schedule
Price per
lawn mowed
Quantity
Supplied
$1
$5
$20
$50
$100
$1000
4
GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Draw this large
in your notes
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
5
GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
6
GRAPHING SUPPLY
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Cereal
Supply
$5
What if new
50
companies
start
making
40
cereal?
30
4
3
2
$3
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
7
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
8
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
9
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 70
$4
40 60
Price of Cereal
Supply
$5
4
3
2
$3
30 50
$2
20 40
1
$1
10 30
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
10
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 70
$4
40 60
Price of Cereal
Supply
4
3
2
$3
S2
$5
Increase in Supply
Prices didn’t change but
there is MORE cereal
produced
30 50
$2
20 40
1
$1
10 30
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
11
Change in Supply
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Cereal
Supply
$5
What if a drought
50
destroys
corn
and
wheat
40
crops?
30
4
3
2
$3
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
12
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
13
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
14
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 30
$4
40 20
Price of Cereal
Supply
$5
4
3
2
$3
30 10
$2
20 1
1
$1
10 0
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
15
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 30
$4
40 20
Price of Cereal
S2
$5
4
3
Decrease in Supply
Prices didn’t change but
there is LESS cereal
produced
2
$3
Supply
30 10
$2
20 1
1
$1
10 0
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
16
Change in Supply
Supply
Schedule
Price
$5
$4
$3
Quantity
Supplied
Price of Cereal
Supply
$5
4
What if cereal companies
50
3
find
a
quicker
way
to
make
40
2
cereal ?
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
17
6 Determinants (SHIFTERS) of Supply
1.
2.
3.
4.
Prices/Availability of inputs (resources)
Number of Sellers
Technology
Government Action: Taxes & Subsidies
Subsidies
A subsidy is a government payment that supports a business or market.
Subsidies cause the supply of a good to increase.
Taxes
Regulation
5. The
Opportunity
Cost
of
Alternative
government can reduce the
Regulation occurs when the
supply
of some goods by placing an government steps into a market to
Production
excise tax on them. An excise tax affect the price, quantity, or quality of
tax on the production orof
saleFuture
of
a good.
Regulation usually raises
6.is aExpectations
Profit
a good.
costs.
Changes in PRICE don’t shift the curve. It only
causes movement along the curve.
18
Supply Practice
First, identify the determinant (shifter) then
decide if supply will increase or decrease
Shifter
Increase or
Decrease
Left or Right
1
2
3
4
5
6
19
Supply Practice
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
Hamburgers
1. Mad cow disease kills 20% of cows
2. Price of burgers increase 30%
3. Government taxes burger producers
4. Restaurants can produce burgers and/or
tacos. A demand increase causes the
price for tacos to increase 500%
5. New bun baking technology cuts
production time in half
6. Minimum wage increases to $10
20