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Section 1-Preview

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In this section, you will learn that the higher the price of a product, the more of it a producer will offer for sale.

Section 1-Key Terms

Content Vocabulary

• supply

• Law of Supply

• supply schedule

• supply curve

• market supply curve

• quantity supplied

• change in quantity supplied

Academic Vocabulary

• various • interaction

• change in supply

• subsidy

• supply elasticity

Section 1

• Supply is an amount of product offered for sale at various prices.

• Law of Supply: Producers will offer more product at higher prices and less at lower prices

What is Supply?

Law of Supply When the price of a product goes up, quantity supplied goes up. When the price goes down, quantity supplied goes down.

VS 1

Section 1

An Introduction to Supply

Supply can be illustrated by a supply schedule or a supply curve.

Section 1

An Introduction to Supply (cont.)

• Suppliers must determine how much to offer for sale at various prices, taking into account the factors of production.

• Like demand, supply can be shown in the form of a table—a supply schedule.

• When information is plotted on a graph, it forms the supply curve.

Supply of Compact Discs

Section 1

An Introduction to Supply (cont.)

• Normal supply curves have a positive slope—prices go up; quantity supply goes up.

• Economists are more interested in the market supply curve than for a single firm.

Individual and Market Supply Curves

Section 1

An Introduction to Supply (cont.)

• The quantity supplied is the amount producers bring to market at any given price.

• A change in price leads to a change in quantity supplied.

• Although the producer has the freedom to adjust production up or down, the interaction of supply and demand usually determines the final price of a product.

An Introduction to Supply (cont.)

Price of Ice Cream Cone

Quantity Supplied of Ice Cream Cones

Figure 5 Ben’s Supply Schedule and Supply Curve

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Price ofIce-Cream

Cone

0

2.50

2.00

1.50

1.00

1 2 3 4 5 6 7 8 9 10 11 Quantity ofIce-Cream Cones

$3.00

12

0.50

1. Anincrease in price ...

2. ... increases quantity of cones supplied.

An Introduction to Supply (cont.)

Price of Ice Cream Cones

Quantity Supplied of Ice Cream Cones

1 5

Price of Ice-Cream Cone

Quantity of Ice-Cream Cones0

S

1.00A

C$3.00 A rise in the price

of ice cream cones results in a movement along the supply curve.

Change in Quantity Supplied

An Introduction to Supply (cont.)

Figure 1

Section 1

Change in Supply

Several factors can contribute to a change in supply.

• Change in Supply– A shift in the supply curve, either to the left or right. – Caused by a change in a non-price determinant of

supply.

Section 1

• A change in supply occurs for several reasons.

1.Cost of resources2.Productivity3.Technology4.Taxes 5.Subsidy6.Expectations7.Government regulations8.Number of sellers

Change in Supply (cont.)

A Change in Supply

Figure 7 Shifts in the Supply Curve

Copyright©2003 Southwestern/Thomson Learning

Price ofIce-Cream

Cone

Quantity ofIce-Cream Cones

0

Increasein supply

Decreasein supply

Supply curve, S3

curve, Supply

S1Supply

curve, S2

Change in Supply (cont.)

For an given rental price, quantity supplied is now lower than before.

Change in Supply (cont.)

Figure 3

Section 1

Elasticity of Supply

The response to a change in price varies for different products.

Section 1

• Supply, like demand, has elasticity.

• Supply elasticity measures how the quantity supplied responds to a change in price.

Elasticity of Supply (cont.)

Elasticity of Supply

Figure 4

Section 1

• Supply elasticity has three forms:

– Elastic

– Inelastic

– Unit elastic

Elasticity of Supply (cont.)

Elasticity of Supply

Section 1

• Supply elasticity is based solely on production considerations.

• A firm’s ability to adjust to new prices quickly is likely to be elastic.

• A firm that takes longer to react to a change in prices is likely to be inelastic.

Elasticity of Supply (cont.)

Elasticity of Supply