Download Supply Defined What is supply?

Unit 2:
Demand, Supply, and
Consumer Choice
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ACDC Leadership 2015
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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.
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EXAMPLE: Mowing Lawns
2
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
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ACDC Leadership 2015
Price per
lawn mowed
Quantity
Supplied
$1
$5
$20
$50
$100
$1000
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GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Milk
Draw this large
in your notes
$5
4
3
2
$3
30
$2
20
$1
10
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ACDC Leadership 2015
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10
20
30
40
50
60
Quantity of Milk
70
80
Q
4
GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
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ACDC Leadership 2015
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10
20
30
40
50
60
Quantity of Milk
70
80
Q
5
GRAPHING SUPPLY
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Milk
Supply
$5
4
What if there are new
50
3
and
more
productive
40
2
$3
30 milking
$2
20
$1
10
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ACDC Leadership 2015
machines?
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
6
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
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ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
7
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
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ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
8
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 70
$4
40 60
Price of Milk
Supply
$5
4
3
2
$3
30 50
$2
20 40
$1
10 30
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10
20
30
40
50
60
Quantity of Milk
70
80
Q
9
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 70
$4
40 60
Price of Milk
Supply
4
3
2
$3
Increase in Supply
Prices didn’t change but
there is MORE milk
produced
30 50
$2
20 40
$1
10 30
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S2
$5
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
10
Change in Supply
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Milk
Supply
$5
What if the price for
50
dairy
cows
increases
40
drastically?
30
4
3
2
$3
$2
20
$1
10
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10
20
30
40
50
60
Quantity of Milk
70
80
Q
11
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
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ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
12
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
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1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
13
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 30
$4
40 20
Price of Milk
Supply
$5
4
3
2
$3
30 10
$2
20 1
$1
10 0
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10
20
30
40
50
60
Quantity of Milk
70
80
Q
14
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 30
$4
40 20
Price of Milk
Supply
S2
$5
4
3
Decrease in Supply
Prices didn’t change but
there is LESS milk
produced
2
$3
30 10
$2
20 1
$1
10 0
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10
20
30
40
50
60
Quantity of Milk
70
80
Q
15
Change in Supply
Supply
Schedule
Price
$5
$4
$3
Quantity
Supplied
Supply
$5
4
What if there is a
50
3
increase
in
the
number
40
2
of
milk
producers?
30
$2
20
$1
10
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Price of Milk
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
16
5 Shifters (Determinants) of Supply
1.
2.
3.
4.
Prices/Availability of inputs (resources)
Number of Sellers
Technology
Government Action: Taxes, Quotas &
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
Expectations
of the
FutureRegulation
Profitoccurs when the
government can reduce
Changes in PRICE don’t shift the curve. It only
causes movement along the curve.
supply of some goods by placing an government steps into a market to
excise tax on them. An excise tax affect the price, quantity, or quality of
is a tax on the production or sale of
a good. Regulation usually raises
a good.
costs.
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Practice Questions
1. Which of the following will cause the
quantity supplied for milk to decrease?
A. Decrease in the price of a key resource
B. A decrease in the number of milk
producers
C. A decrease in the price of milk
D. An increase in the price of milk
E. A subsidy for milk producers
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Supply Practice
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
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Supply Practice
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
Analyze Hamburgers
1. Strange virus kills 20% of cows
2. Price of hamburgers increase 30%
3. Government taxes burger producers
4. New bun baking technology cuts
production time in half
5. The government subsidizes dairy
farmers
6. Minimum wage increases to $20
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Putting Supply and
Demand Together!!!
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Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P
Schedule $5
P Qd
Supply
Schedule
S
P Qs
4
$5 10
$5 50
3
$4 20
$3 30
$2 50
$1 80
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$4 40
2
$3 30
1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
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Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P
Schedule $5
P Qd
S
P Qs
4
$5 10
$5 50
Equilibrium Price = $3
(Qd=Qs)
$4 40
3
$4 20
$3 30
$2 50
$1 80
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Supply
Schedule
2
$3 30
1
D
10
20
30
40
50
60
70
Equilibrium Quantity is 30
80
Q
$2 20
$1 10
23
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P
Schedule $5
P Qd
3
$4 20
$2 50
$1 80
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S
P Qs
4
$5 10
$3 30
Supply
Schedule
2
What if the price
increases to $4?
1
$5 50
$4 40
$3 30
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
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At $4, there is disequilibrium. The quantity
demanded is less than quantity supplied.
Demand P
Schedule $5
P Qd
How much is the
surplus at $4?
Answer: 20
$4 20
$1 80
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P Qs
4
3
$2 50
S
Surplus
(Qd<Qs)
$5 10
$3 30
Supply
Schedule
2
$5 50
$4 40
$3 30
1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
25
How much is the surplus if the price is $5?
Demand P
Schedule $5
P Qd
3
$4 20
$2 50
$1 80
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S
P Qs
4
$5 10
$3 30
Supply
Schedule
2
What if the Answer:
price 40
decreases to $2?
1
D
10
20
30
40
50
60
70
80
Q
$5 50
$4 40
$3 30
$2 20
$1 10
26
At $2, there is disequilibrium. The quantity
demanded is greater than quantity supplied.
Demand P
Schedule $5
P Qd
S
P Qs
4
How much is the
shortage at $2?
Answer: 30
$5 10
3
$4 20
$3 30
$2 50
$1 80
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Supply
Schedule
2
10
20
30
40
$4 40
$3 30
Shortage
(Qd>Qs)
1
$5 50
D
50
60
70
80
Q
$2 20
$1 10
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How much is the shortage if the price is $1?
Demand P
Schedule $5
P Qd
Supply
Schedule
S
P Qs
4
$5 10
Answer: 70
3
$4 20
$3 30
$2 50
$1 80
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$5 50
$4 40
2
$3 30
1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
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The FREE MARKET system automatically
pushes the price toward equilibrium.
Demand P
Schedule $5
P Qd
Supply
Schedule
S
When there is a
surplus, producers P Qs
lower prices
$5 50
When there is a
shortage, producers $4 40
raise prices
$3 30
4
$5 10
3
$4 20
$3 30
$2 50
$1 80
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1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
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Review
1. Explain the Law of Demand
2. Explain the Law of Supply
3. Identify the 5 shifters of demand
4. Identify the 6 shifters of supply
5. Define Subsidy
6. Explain why price DOESN’T shift the
curve
7. Define Equilibrium
8. Define Shortage
9. Define Surplus
10.Identify 10 stores in the mall
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2008 Audit Exam