Supply

 Demand is all about the buyer.  Supply is all about the seller.

 The various amounts of something a producer is willing and able to sell at different possible prices at a particular time.

 Like demand, there is a price effect for supply.  At higher prices, suppliers are willing to supply more goods and services than at lower prices.

 Why does OPEC (Organization of Petroleum Exporting Countries) strictly set and constantly change production rates for oil in the Middle East?

 The sum of all individual supplies in a given market at a particular time.

 Why would producer A supply 40 quarts of milk at 10 cents, and producer C supply 0 quarts of milk at that price?

 Producer C won’t offer any quarts of milk at 5 or 10 cents because its marginal cost of production is higher than those prices ◦ It costs more than 10 cents for producer C to make one quart of milk

 For example, suppose it costs $1000 to produce 100 units and $1020 to produce 101 units. The average cost per unit is $10, but the marginal cost of the 101st unit is $20

If the change in price has a large impact on the amount of goods and services that are supplied, then the price effect is big and the supply is elastic.

 CHICKEN!! ◦ The number of chickens provided by chicken producers can increase greatly when the price of chickens goes up  Because Marginal Cost of raising more chickens is not very high

 If a change in price has little impact on the quantity of a good or service supplied, then the price effect is small and supply is inelastic.

 Gasoline  Custom Made Furniture  Expensive Cars (Ferrari, Porsche…) All of these products have a high marginal cost of production

 The price effect concerns changes in quantity supplied (movements along the supply curve)  True change in supply involves a shift to right (increase) or left (decrease)

 The price of gasoline has increased by 50 cents this past week because of unrest in the Middle East and particularly Libya ◦ Was there a change in supply in this instance?

 Remember! When price is changing, it is the price effect and NOT a change in demand  The amount that was able to leave the Middle East and Libya decreased (not the amount actually in existence)

 Companies and employees find more efficient ways to produce their goods and decrease production costs.  Sellers can then supply more at every possible price.

 When new businesses enter the market the supply will increase, causing the supply curve to shift to the right.

 If producers expect higher future prices for their product they may produce more today.