Download Law of Supply

Supply & Demand
Part Two
SUPPLY
Have your lecture notes ready….
Law of Supply:
Holding all else equal, when the price
of a good rises, suppliers increase their
quantity supplied for that good.
P
S “Supply goes up
to the Sky”
Q
Law of Supply:
Holding all else equal, when the price
of a good rises, suppliers increase their
quantity supplied for that good.
S
P
It can also be curve
shaped, but for now
let’s stick with straight
lines
Q
Law of Supply:
Holding all else equal, when the price
of a good rises, suppliers increase their
quantity supplied for that good.
P
S
To be on the
supply curve
a person must
be WILLING
and ABLE to
sell the
product or service.
Q
Law of Supply:
Holding all else equal, when the price
of a good rises, suppliers increase their
quantity supplied for that good.
P
S
There is an
Direct
___________
relationship
between price
and quantity supplied.
Q
P
S
Q
Definitions:
Qs--it is the amount that will be sold at
a specific P.
S--it is a schedule of quantities of goods and
services that will be sold at various prices
at a specified time, all other things held constant.
P
S
s is the entire
curve.
Qs
just a point on the
curve.
Q
Price changes Quantity Supplied
Price DOES NOT CHANGE
SUPPLY!!!!!!!!
GUESS HOW MANY
DETERMINANTS OF
SUPPLY THERE ARE?
5
And if you don’t memorize these variables, YOU
WILL NOT PASS THE AP EXAM!!!
ARE THERE ANY QUESTIONS?
Five determinants of Supply:
1. # of suppliers
Supply of Tacos in Bellflower
Higher # of suppliers = increase in supply
Lower # of suppliers = decrease in supply
Five determinants of Supply:
1. # of suppliers
2. Costs
# suppliers S
# suppliers S
Cost of an input resource
Price of
decreases = Meredith and Lulu
can make more lemonade without an increase
in production costs. MC=MB. They will make
more lemonade. Supply increases.
& Vice Versa:
If the price increased, supply would decrease.
Costs and Government
Taxes and Subsides
Taxes increase costs
Subsides
Subsidies decrease costs
Five determinants of Supply:
1. # of suppliers
2. Costs
Costs S
Costs S
3. Physical Availability of Resources
Physical Availability of Resources
Destruction of crops
Supply of those resources and all products
that use them in their production decreases
Five determinants of Supply:
1. # of suppliers
2. Costs
3. Physical Availability of Resources
Physical
Avail
Resources
S
4. Technology
Physical Avail Resources S
Technological improvement = increased productivity
Increased productivity = lower marginal cost
MC=MB
supplier produces more
= increase in supply
Five determinants of Supply:
1. # of suppliers
2. Costs
3. Physical Availability of Resources
Technology S
4. Technology
Technology S
5. Expected Future Prices
Future Expectations
If a heat wave is predicted:
Suppliers may hold on
to stock to make more
profit later.
Current supply
Future supply
If an overall increase in price is expected,
current supply decreases, they believe they
will make more profit later
Five determinants of Supply:
1. # of suppliers
2. Costs
3. Physical Availability of Resources
4. Technology
5. Expected Future Prices
EFP S
EFP S
Time to Break out
the Whiteboards!!
Don’t forget the
markers and erasers
Five variables that shift Supply:
Determinants of Supply
2. Physical Availability
Never
Post
3. Costs
Copies of your
1. # of suppliers
4. Technology
5. Expected Future Prices
Templates or
Everyone
will be able to make (supply) them.