Homework: Practice #2 due tomorrow Supply o Schedule or curve showing amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period.
o Law of supply: As P increase, S increases, as P decreases, S decreases. (direct or positive relationship)
Supply o Remember to switch your mind set to producers/firms, not consumers anymore. o To a supplier price = revenue (incentive to sell product) A Supply Funny $1 2 3 4 5 P Q S
CORN Various Amounts 5 20 35 50 60 SUPPLY SCHEDULE SUPPLY SCHEDULE $1 2 3 4 5 P Q S
CORN Various Amounts A Series of Possible Prices a specified time period other things being equal 5 20 35 50 60 5 P Q o $5
Price of Corn Quantity of Corn CORN What if Supply Decreases? GRAPHING SUPPLY Supply Curve Change in supply vs. change in quantity supplied? Change in supply = shift of entire curve Change in quantity supplied = shifting from one point to another point on a fixed line.
Determinants of Supply ROTTEN Factors besides price that cause the supply curve to shift. Resource prices Other goods (prices of) Technology Taxes & subsidies Expectations Numbers
Resource prices/availability: If prices of resources used in production increase, supply decrease and vice versa.
If availability of resources increase, supply will increase. Price of other goods: Leather company produces wallets, belts, and shoes. Price of shoes increase, so factory produces more shoes, and less wallets and belts. Technology: Improvements allow firms to make more with less resources, which lowers the cost of supply. (Therefore increasing it)
Taxes & Subsidies: Tax: firms see this as a cost (excise tax on cigarettes, fees on license to produce). Therefore decreases supply. Taxes & subsidies: Subsidies: Government pays suppliers to encourage or protect certain economic activity. (decrease $ to Universities decreases higher education)
Expectations (of future prices): If expect price to rise, produce more. If expect price to drop, produce less.
Number of sellers: More sellers = more supply Less sellers = less supply.