Download Quantity supplied

Eco 7/3
The Law of Supply
and the Supply Curve
Demand
• Consumers demand
the lowest possible
prices for products
and services.
Supply
• Businesses must
make a profit.
The Law of Supply
• As the price rises for a good, the quantity
supplied also rises.
• As the price falls, the quantity supplied
also falls.
Law of Supply
• In supply, price and quantity supplied are
directly proportional, they move in the
same direction.
As prices rise, quantity supplied rises.
As prices fall, quantity supplied falls.
The Incentive of Greater Profits
• The higher the price of a good, the more
the incentive to produce more.
Producing more of a product at a higher
price will cover your costs- employees,
rent, insurance, and added production
costs.
Supply Schedule
• Supply table. See 7.8
Supply Curve
• Curve, always upward
Quantity Supplied vs.
• Quantity
supplied- caused
by a change in
price and is shown
as a movement
along the supply
curve.
Supply
Supply- producers
supply more or
fewer goods at
every price,
shifting the curve
right or left.
Determinants of Supply
•
•
•
•
Price of inputs
Number of firms in the industry
Taxes
Technology
Price of Inputs
• If price of inputs (raw materials, wages,
etc.) drops, producer can produce more at
every price, shifting curve RIGHT.
Number of Firms in the
Industry
• As more firms enter the industry,
greater quantities are supplied at
every price. Supply curve shifts
right.
(More video stores supply more
videos.)
Taxes
• If gov’t imposes more taxes,
businesses will NOT supply as
much because the cost of
production will rise.
Supply curve shifts left.
Technology
• Technology reduces cost of
production. Any improvement in
technology will increase supply,
shifting supply curve right.
Law of Diminishing Returns
• Adding units of one factor of
production to others increases total
output.
• After a certain point, the extra output
for each additional unit hired will
begin to decrease.
Law of Diminishing Returns
• You own a business with 3 workstations.
You hire 3 employees. When you hire the
4th, production still increases but at a
diminishing rate. More get in the way.