The Wonderful World of….. Supply

Standards: SSEMI2A: Define the law of supply. SSEMI2B: Distinguish between supply and quantity supplied. SSEMIE: Identify the determinants (shifters) of supply (e.g. changes in costs of productive resources, government regulations, number of sellers, producer expectations, technology and education) and illustrate the effects on a supply and demand graph.

Two Definitions of “Supply” Supply—the amount of goods available. Quantity Supplied—the amount a supplier is willing and able to supply at a certain price.

Price and Quantity Supplied have a DIRECT relationship. The Law of Supply An increase in the price of a good or service leads to an INCREASE in the quantity supplied… A decrease in the price of a good or service leads to a DECREASE in the quantity supplied. Price and Quantity Supplied have a DIRECT relationship.

Supply Schedule & Curve

Change in Quantity Supplied

Change in Supply

Supply Shifts When the entire supply of a product increases or decreases, the supply has SHIFTED. What would cause a product’s supply to shift? 1. Cost of Productive Resources—if the price of lumber rises, the supply of furniture will… Shift to the LEFT. 2. Technology—when Henry Ford perfected the assembly line, the automobile supply… Shifted to the RIGHT. 3. Government actions—taxes; subsidies; regulations.

Government Influence-Subsidies Subsidy—a government payment that supports a business or market. With some subsidies, businesses are paid to limit or cease production of certain products. Causing supply to shift to the… LEFT… And with some subsidies, businesses are guaranteed MINIMUM prices for certain products… RIGHT. How do subsidies affect the AVERAGE AMERICAN? HIGHER TAXES…. HIGHER PRICES… Or… BOTH.

Government Influence--Taxes Excise Tax—a tax on the production or sale of a good. Excise taxes increase production costs by adding an extra cost for each unit sold… And result in a supply shift to the LEFT. They are often used on harmful products, like cigarettes & alcohol.

Government Influence--Regulation Regulation—government intervention in a market that affects the production of a good. Regulation increases costs…and lowers supply. Example—when minimum wage is INCREASED… Firms often respond by laying workers off… If a business goes from 80 workers to 65 workers… The supply of their product will shift… To the LEFT.

Producer Expectations Producer expectation of prices—if a seller expects the price of a good will rise in the future… They will store the good & the supply will SHIFT TO THE LEFT. If they expect a price drop, they will sell NOW… And the supply will… SHIFT TO THE RIGHT.

Number of Suppliers If more suppliers enter the market… The supply of whatever good they’re selling will…? Shift to the RIGHT. If suppliers stop producing and leave the market… The supply will…? Shift to the LEFT.

iRespond Question Multiple Choice F The future expectation of LOW prices tends to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged. D.) E.)

iRespond Question Multiple Choice F Increases in the cost of raw materials (water, lumber, rubber, etc.) tend to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged. D.) E.)

iRespond Question Multiple Choice F The introduction of new technology tends to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged. D.) E.)

iRespond Question Multiple Choice F Governmental actions like subsidies and taxes tend to cause supply to... A.) shift to the right. B.) shift to the left. C.) remain unchanged. D.) E.)