1. Supply CHAPTER 4 SECTION 1: Nature of Supply
Holt Economics
4/21/2017
CHAPTER 4
Supply
SECTION 1: Nature of Supply
SECTION 2: Changes in Supply
SECTION 3: Making Production Decisions
Chapter 4

2. Objectives: Nature of Supply SECTION 1
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?

3. P Qs Law of supply: Nature of Supply SECTION 1
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. P Qs

4. S
3.00
2.00
1.00 Pr
ice
Quantity

5. Difference between supply and quantity supplied:
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

6. Difference between supply and quantity supplied:
quantity supplied—the amount of a good or service that producers are willing to supply at each particular price
Only caused by a change in price!!

7. What supply schedules illustrate:
SECTION 1
Nature of Supply
What supply schedules illustrate:
Supply schedule—the quantity of a product that a producer is willing to supply at various prices
Price
Quantity Supplied
1.00
4,000
2.00
9,500
3.00
14,500

8. What Supply Curves Illustrate:
Graph of Supply Schedule S
3.00
2.00
1.00 Pr
ice
What Supply Curves Illustrate:
Supply curve
graphs the data shown in supply schedules
Quantity

9. Creating Supply Graphs
Draw the appropriate Supply Curve for each Supply Schedule.

10. #1
Supply for gasoline in one week period.
Quantity in gallons
Price Q-Supplied
gal
gal
gal
gal
gal
gal

11. Supply for Pepsi sold at Quick Stop in one day. #2
Supply for Pepsi sold at Quick Stop
in one day.
Quantity in cups of Pepsi.
Price Q-Supplied

12. #3
Supply for music CDs in one year.
Price Q-Supplied $ $ $ $ $ $

13. Objectives: Changes in Supply SECTION 2
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?

14. SECTION 2
Changes in Supply
When a product’s supply shifts, different quantities of products are supplied at every possible price.

15. S1 Pr
ice S2
Quantity

16. Determinants of product supply shifts:
SECTION 2
Changes in Supply
Determinants of product supply shifts:
resource prices
technology
competition
prices of related goods
producer expectations
government tools
Subsidies
Taxes
Regulations

17. Difference between a tax and a subsidy:
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

18. Headlines: For each Headline:
Determine what direction the Supply Curve will move.
Determine which determinant of Supply is making the curve move.
Draw the graph.

19. Product: Hot Dogs Price of Beef Sky Rockets
Direction? ________________
Determinant? ________________
Draw Graph:
Shift to the Left
Resource Prices

20. S2 S1 Pr
ice
Quantity

21. Product: Hershey Chocolate
Halloween is Next Week!!!!
Shift?________
Det._________
Graph:

22. Product: Headphones iPods to go on Sale Tomorrow Shift?________
Det._________
Graph:

23. Product: Televisions
New Television Producer Hopes to Make Splash With New Slim LCD T.V.
Shift?________
Det._________
Graph:

24. Product: Bananas
To Keep Costs low, the Government Will Give Subsidy to Banana Farmers Next Year
Shift?________
Det._________
Graph:

25. Product: Come up with your own
Headline: Come up with your own.
Trade with the person in-front of/behind you.

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

27. Elastic Supply S P2
Small change in Price P1 Q1 Q2
Large change in Qs

28. Inelastic Supply S P2 P1
Big Change in Price Q1 Q2
Small Change in Qs

29. Objectives: SECTION 3 Making Production Decisions
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?

30. Why producers look at productivity when making supply decisions:
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

31. How varying levels of input affects the levels of output:
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.

32. How changes in production costs affect producers’ supply decisions:
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

33. 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.

34. 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.