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

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?

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

S 3.00 2.00 1.00 Pr ice 2000 4000 6000 8000 10000 12000 14000 Quantity

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

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!!

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

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 2000 4000 6000 8000 10000 12000 14000 Quantity

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

#1 Supply for gasoline in one week period. Quantity in gallons Price Q-Supplied 4.00 50000 gal 3.95 45000 gal 3.90 40000 gal 3.85 35000 gal 3.80 30000 gal 3.75 25000 gal

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 1.75 75 1.70 70 1.65 45 1.60 30 1.55 15 1.50 7

#3 Supply for music CDs in one year. Price Q-Supplied $25.00 30000 $23.00 27000 $20.00 25000 $18.00 15000 $15.00 12000 $10.00 10000

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?

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

S1 Pr ice S2 Quantity

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

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

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.

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

S2 S1 Pr ice Quantity

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

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

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

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

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

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

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

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

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?

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

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.

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

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.

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.