Download Chapter 5 Supply

Chapter 5
Supply
KEY IDEAS YOU NEED TO KNOW:
Define supply
Explain how individual suppliers combine to provide market supply.
Define price elasticity of supply and list the factors that influence it.
Describe factors that cause a change in supply.
What is SUPPLY?
The Law of Supply- Simply means that the higher the price, the higher the quantity
supplied. Producers supply more at a higher price because selling a higher quantity at a
higher price offers greater revenues. Quantity supplied is directly proportional to price.
Clearly the law of supply is the opposite of the law of demand. Don't these both make
sense to you? Consumers want to pay as little as they can. They will buy more as the
price drops. Sellers, on the other hand, want to be able to charge as much as they can.
They will be willing to make more and sell more as the price goes up. This way they can
maximize profits.
Numerically a supply schedule would look like this:
Supply Schedule for Cookies
At a price of Sellers will offer
.70 cents
2,000 cookies
.60
1,800
.50
1,600
.40
1,400
.30
1,100
.20
700
.10
100
The accompanying supply curve would be drawn like so:
The job of sellers is to supply what buyers demand. Like those of the buyer, the seller’s
actions are influenced by a number of things. A major influence on sellers is the profit
motive. Profit is the difference between what it costs to make a good or provide a service
and the price for which the good or service sells. The larger the difference, the greater
the profit. Profits, therefore, are determined by two things:


what it costs to make a product.
the price people are willing to pay for it.
For each price consumers offer, sellers are willing to offer a different amount of a good
or a service.
The seller wants to make the highest profit possible on goods and services sold. Profit is
not the only motive that affects sellers, but it is one of the most important. Some sellers,
for example, are willing to keep their profits lower than they could be in order to avoid
taking risks. Others would rather work less and take smaller profit. Also, laws and rules
limit the pursuit of profits. They include laws that set maximum hours and minimum
wages for workers, and workplace safety rules. Supply are the various amounts of
something a producer is willing and able to sell at different possible prices at a particular
time.
A supply curve shows the relationship between price and quantity supplied. Any change
in price will cause a change in the quantity supplies. Like demand, supply is influenced
by factors other than price. If any of these factors change, the entire supply curve will
shift. Five factors beside price influence supply.





Developing a less expensive means of production.
The cost of human, capital, and natural resources change.
Suppliers will change their production in order to increase profits.
Change in the number of producers or sellers.
Change in expectations
A change in any one of these factors affects the entire supply schedule and curve. Old
supply schedules and curves then are no longer accurate. Changes in price cause a
change in quantity supplied.
ELASTICITY
Elasticity of Supply - When supply goes up price goes down and when price goes up
supply goes down. Products are elastic if price has a large impact on supply, they are
inelastic if supply remains relatively constant due to fluctuations in price.
Factors which effect supply elasticity are: Price, resource costs, technology,competitive
products, profit expectations, number of sellers, natural events, taxes,subsidies and
government regulations, overproduction, flooding the market, inability to produce an
item, scarcity of natural resources.