Supply and Demand Supply

Definition The amount of goods and services that producers are willing and able to sell at any one time Reflects producer behavior, not consumer behavior –Does not take demand into consideration –Motto: “On Planet supply, they will always buy.”

Producers are willing to produce more products and services when they make Profit is the reason that business exists (profit motive) MORE PROFIT

Supply Curve Illustrates the amounts that producers are willing to make available at various prices –Reflects the range of possibilities –Curve always slants up and to the right –Price is always on vertical axis, quantity is always on the horizontal axis Shows the relationship between price and quantity supplied

Quantity Supplied The specific amount of a product that would be available for sale at a specific price –Its shown as a number along the bottom of the graph

Law of Supply Shows the relationship between price and quantity supplied –Cause = Price –Effect = Quantity Supplied

Law of Supply continued As the price of an item increases, the quantity supplied will increase –What affect does this have on profit? –As profits increase, the quantity supplied increases  P → Qs  –As the price of an item decreases, the quantity supplied will decrease ↓P → Qs ↓ Conclusion: Supply varies directly with changes in price

Shifts in Supply An increase in supply shifts the curve to the right (not up) A decrease in supply shifts the curve left (not down)

Determinants of Supply Factors that cause changes in supply and shift the curve either left (decrease) or right (increase) –There is a difference in a change in supply and a change in quantity supplied

Determinant: Competition Acts like substitutes for consumers Competition puts pressure on prices, driving them down –↑competition→↓profits→↓S –↓competition→↑profits→↑S

Determinant: Resource Costs Factors of production: land, labor, capital, and management When resource costs increase, profits decrease, leading to a decrease in willingness to supply ↑Cost of Resources → ↓ Profit → ↓Supply and the curve shifts left Likewise: ↓Cost of Resources →↑ Profit → ↑Supply and the curve shifts right

Determinant: Regulation by Government Taxes, laws, restrictions, all equal expenses to business –↑Regulation =↑ Costs→ Profits↓→Supply↓ –↓Regulation = ↓ Costs→Profits ↑→Supply↑

Determinant: Expected Price Change Prepare for future sales Must adjust production NOW to be ready for the price change –Expect Price ↑→ S↑ –Expect Price ↓→ S↓

Determinant: Efficiency Often the result of innovative technology –Production is better, cheaper, faster, more efficient ↑Efficiency →  Profit →  Supply and the curve shifts right -Reduced efficiency means reduction in supply ↓Efficiency →↓Profits → ↓ Supply and the curve shifts left

Profit Motive Increased profit causes an increase in supply  Profit →  Supply Decreased profit causes a decrease in supply ↓ Profit → ↓Supply Profit isn’t a determinant but if you remember how profit is affected, you will remember in which direction supply shifts.