CHAPTER 4

Supply
SECTION 1: Nature of Supply SECTION 2: Changes in Supply SECTION 3: Making Production Decisions

1

SECTION 1

Nature of Supply

Objectives:
 What is the difference between supply and quantity supplied?  What does the law of supply state?  What do supply schedules and supply curves illustrate?  What is supply elasticity?
2

SECTION 1

Nature of Supply

Difference between supply and quantity supplied:
 supply—quantity of goods and services that producers are willing and able to offer at various prices during a given time period  quantity supplied—the amount of a good or service that producers are willing to supply at each particular price
3

SECTION 1

Nature of Supply

Law of supply:
 More goods and services are supplied when they can be sold at higher prices, and fewer goods and services are supplied when they must be sold at lower prices.

4

SECTION 1

Nature of Supply

What supply schedules and supply curves illustrate:
 Supply schedule—the quantity of a product that a producer is willing to supply at various prices  Supply curve
 graphs the data shown in supply schedules  indicates a product’s market over a specific

period of time
5

SECTION 1

Nature of Supply

Supply elasticity indicates the extent to which price changes affect the quantity supplied.

6

SECTION 2

Changes in Supply

Objectives:
 What does it mean for a product’s supply to shift?  What determinants might cause a product’s supply curve to shift?  How does a tax differ from a subsidy?

7

SECTION 2

Changes in Supply

When a product’s supply shifts, different quantities of products are supplied at every possible price.

8

SECTION 2

Changes in Supply

Determinants of product supply shifts:
 resource prices  government tools  technology  competition  prices of related goods  producer expectations
9

SECTION 2

Changes in Supply

Difference between a tax and a subsidy:
 tax—required payment to the government  subsidy—payment to private businesses by the government

10

SECTION 3 Making Production Decisions

Objectives:
 Why do producers look at productivity when making supply decisions?  How do varying levels of input affect the levels of output?  How do changes in production costs affect producers’ supply decisions?
11

SECTION 3 Making Production Decisions

Why producers look at productivity when making supply decisions:
 to determine how efficiently their resources are being used in production  to maximize efficiency  to increase profits

12

SECTION 3 Making Production Decisions

How varying levels of input affects the levels of output:
 Adding levels of input increases productivity up to a point and then eventually results in decreased productivity and in negative marginal product.

13

SECTION 3 Making Production Decisions

How changes in production costs affect producers’ supply decisions:
 by determining the prices at which producers supply quantities of goods or services  by determining production goals

14

CHAPTER 4

Wrap-Up
1. Define the law of supply. Be sure to include how the profit motive relates to this law. 2. What causes movement along a supply curve—in other words, what prompts a change in the quantity supplied? How does this movement differ from a shift in supply? 3. What determinants can cause a shift in supply? Give examples of at least three of these factors at work for a company that manufactures televisions.
15

CHAPTER 4

Wrap-Up
4. In how many ways does new technology affect the supply curve? Give at least one example for each way you come up with. 5. Explain what happens in the three stages of production described by the law of diminishing returns. 6. Explain the difference among the following types of costs: fixed, variable, total, marginal.

16