Download Supply - FrankEconomics

Unit 2: Supply, Demand,
and Consumer Choice
1
Review
• 1. What is the law of demand?
2
LAW OF SUPPLY
As Price Falls…
…Quantity Supplied Increases
As Price Rises…
…Quantity Supplied Decreases
3
Supply
4
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 relationship between price and
quantity supplied. (price and quantity supplied go the
same direction)
•As P increases, the Q producers make increases
•As P decreases, the Q producers make decreases.
Why? Because, higher prices = higher profit.
Firms have an incentive to produce more.
EXAMPLE: Mowing Lawns
5
EXAMPLE: Mowing Lawns
6
Example of Supply
You own a lawn mower and you are
willing to mow lawns.
How many lawns will you mow at these prices?
Supply
Schedule
Price per
hour
Quantity
Supplied
$1
$5
$20
$50
$100
$1000
7
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
8
9
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
10
GRAPHING SUPPLY
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Cereal
Supply
$5
What if new
50
firms
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
11
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
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 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
14
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
15
Change in Supply
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Cereal
Supply
$5
What if there was
50
no
rain
and
the
40
crops died?
30
4
3
2
$3
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
16
17
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
18
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
19
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
20
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
21
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
faster
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
22
Changes in Supply Curve
• The changes can be
• Movement along Supply Curve
• Shifts of Supply Curve
5 Changers (SHIFTERS) of Supply
1. Change in the cost of factors of
production (resources)
2. Change in the price of related goods
3. New Technology
4. Business expectations of the future
5. Other factors, Weather, war, tax, etc.)
Changes in PRICE don’t shift the curve. It only
causes movement along the curve.
24
Price of Related Goods
Price of Related Goods
Complementary Products
26
Substitutes and complements
Substitutes can satisfy the same want
Complements are in joint demand
or
or
or
27
Other Factors
Weather
Expectations of future prices changes
• If consumers expect prices ↑  Demand ↑ now
• If consumers expect prices ↓  Demand ↓ now.
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
29
Supply Practice
1. Which SUPPLY SHIFTER?
2. Supply will Increase or decrease?
3. Which the curve will curve shift in or out?
RICE
1. A disease kills 40% of rice in China
2. The price of noodles increase 30%
3. Government increases tax for rice
producers
4. New rice technology cuts production
time in half
5. Minimum wage of workers increases to
$15/hour
30
Vocabulary
• 5 Shifters of supply
• Related goods
1. Substitute goods
2. Complementary
goods
31
Homework activity
• Activity 2.15 pg 55
• Activity 2.18 pg 59
32