The Law of Supply What is Supply?

The Law of Supply States that when prices decrease, quantity supplied decreases, and when prices increase, quantity supplied increases.

Supply Supply is the willingness and ability to offer goods and services for sale. Two key words in the definition of supply: willingness and ability.

Supply Schedule vs. Market Supply Schedule A Supply Schedule is a table that shows how much of a good or service an individual producer is willing and able to offer for sale at each price in a market. A Market Supply Schedule is a table that shows how much of a good or service all producers in a market are willing and able to offer for sale at each price in a market.

Marginal Product The change in total product that results from hiring one more worker.

Increasing Returns vs. Diminishing Returns Increasing returns occurs when hiring new workers causes marginal product to increase. Diminishing returns occur when hiring new workers causes marginal product to decrease.

Fixed Costs vs. Variable Costs Fixed costs are those that business owners incur no matter how much they produce. Variable costs depend on the level of production output.

Total Cost vs. Marginal Cost Total cost is the sum of fixed and variable costs. Marginal cost is the extra cost of producing one more unit.

Total Revenue vs. Marginal Revenue Total revenue is a company’s income from selling its products. Marginal revenue is the money made from the sale of each additional unit of output.

Profit-Maximizing Output The level of production at which a business realizes the greatest amount of profit.

What changes supply? Input Costs – the collective price of the resources that go into producing a good or service, affect supply directly. Labor Productivity - Better trained or more skilled workers are usually more productive. Increased productivity decreases costs and increases supply. Government Action – Such as taxes or subsidies, can have a positive or a negative effect on production costs.

What changes supply? Number of Producers – A successful new product or service always brings out competitors who initially raise overall supply Producer Expectations – The amount of product producers are willing and able to supply may be influenced by whether they believe prices will go up or down. Technology – By applying scientific advances to the production process, producers have learned to generate their goods and services more efficiently

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