Presentation on theme: "What is Supply? Supply How many hours do you spend studying every night? How many hours would you study if you were paid $1 an hour? $10 an hour?"— Presentation transcript:
What is Supply?
Supply How many hours do you spend studying every night? How many hours would you study if you were paid $1 an hour? $10 an hour? If you would study more at a higher price, you are following the Law of Supply.
Supply What is the nature of demand? Supply is almost the mirror image of demand. It describes the other half of the market which provides products for those who demand them.
Supply Do YOU play a role as producers in the market? Producers provide services as well as goods. Does anyone have a part-time job, do baby-sitting, or household chores for allowance? Then YOU are a producer supplying an economic product, your labor, to buyers in the marketplace.
Supply When economists consider demand, they are interested in the desire, ability, and willingness to purchase a product over a wide range of prices. Remember, economists are concerned with the market as a whole. Therefore, Supply is the quantity of a product or service that sellers will provide at all possible prices that could prevail in the market. For example, the supply of TV sets is the number of sets manufacturers will likely produce if the prevailing market is $700, $500, $300, or any other prices.
Supply Everyone who offers an economic product for sale is a supplier. YOU will be more willing to supply more labor at a higher wage than you would for a low one. It is reasonable to predict that the higher the price, the greater quantity the seller will offer for sale.
Supply Supply Schedule is a listing that shows the quantity supplied at each and every price. Supply Curve shows the same information in the form of a graph. It always slopes upward to the right. This is the opposite of the demand curve.
Supply A supply schedule and curve.
The Law of Supply Thus, the Law of Supply states that the quantity supplied varies directly with its price. In other words, if prices are high, suppliers will offer greater quantities for sale. If prices are low, they will offer smaller quantities for sale.
Change in Quantity Supplied The amount that producers bring to market at any one price is called the quantity supplied. A Change in Quantity Supplied is the change in amount offered for sale in response to a change in price. This is shown on the supply curve by a movement along the curve.
Change in Quantity Supplied For example, 350 T-shirts are supplied when the price in $30. If the price decreases to $24, 300 T-shirts are supplied. If the price then changes to $21, 240 T-shirts are supplied. These changes illustrate a change in the quantity supplied.
Change in Supply Sometimes producers offer different amounts of products for sale at all possible prices in the market. This is known as a Change in Supply. This is shown on the supply curve by a shift in the entire curve.
Change in Supply Reasons for change in supply: 1. Cost of Inputs – In the T-shirt example, if the cost of ink or cotton goes down, then producers can produce more t-shirts at each and every price. The supply curve would shift right. If the cost of inputs increases, producers would not be willing to produce as many shirts at each and every. The supply curve would shift left.
Change in Supply 2. Productivity – If management trains workers to be more efficient then productivity increases. The supply curve shifts to the right because more shirts are produced at every possible price in the market.
Change in Supply 3. Technology – New technology almost always shifts the curve to the right. The introduction of a new machine, chemical, or industrial process can affect supply by lowering the cost of production. New technology does not always work as expected. Equipment might break down or parts may be difficult to obtain.
Change in Supply 4. Number of Sellers – The supply curve represents all producers. Thus, when new suppliers enter the market supply increases, or shifts to the right. If some sellers leave the market, fewer products are offered for sale at all possible prices. Supply decreases, and the supply curve shifts to the left.
Change in Supply 5. Taxes and Subsidies – They have the same impact as cost of inputs. If the producer’s inventory is taxed, the cost of production increases. (Shift to the left) If the government provides subsidies, the cost of production decreases. (Shift to the right)
Change in Supply 6. Expectations – The anticipation of future events. If producers expect future price increases, they will withhold some of the supply, shifting the curve left. If producers expect future price decreases, they will flood the market, shifting the curve right.
Change in Supply 7. Government Regulations - When government places mandates on producers, the cost of inputs increases, shifting the curve to the left. For example, when government mandates new auto safety features such as stronger bumpers, air bags, and emission controls, cars cost more to produce.
Change in Supply What do you think happens to the supply curve in the following situations and why? 1. Cost of materials used to make CDs fall. (Shifts to right because supply increases because price of inputs falls.) 2. New training methods improve worker efficiency. (Shifts to right because supply increases due to increased productivity.)
Change in Supply 3. Innovative process for pressing CDs introduced. (Shifts to right because supply increases because new technology lowers production costs.) 4. Leading CD producer goes out of business. (Shifts of left because supply decreased by suppliers leaving the market.)
Supply Elasticity Just as demand has elasticity, there is elasticity of supply. Supply Elasticity tells how much a change in price affects quantity supplied. Products that require large amounts of money and technology to change production tends to be Inelastic. Products made quickly without large amounts of money and technology is elastic. (Candy and toys)