Chapter 5.1: Supply

Slide 2 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Objectives 1.Explain the law of supply. 2.Interpret a supply schedule and a supply graph. 3.Examine the relationship between elasticity of supply and time.

Slide 3 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Bell Ringer Divide into groups of 3…instructions to follow: –Each group list and number the brand names of as many bottled beverages as you can in four minutes Mt Dew, Vitamin Water, Sprite etc etc –Once four minutes is up, decide how to divide your list into categories Example – Type of beverage, price, type of container, marketed as sports/health/thirst quenching.

Slide 4 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Bell Ringer How many did you list? How did you categorize? Why are there so many varieties in each category?? Why is there more than one type of bottled water!!?? PEOPLE ARE WILLING TO PAY FOR IT!!

Slide 5 Copyright © Pearson Education, Inc.Chapter 1, Opener Understanding Supply Supply The amount of goods available Suppose you own a bakery. Even after you raised prices, you can’t keep products on the shelf. What will you do?

Slide 6 Copyright © Pearson Education, Inc.Chapter 1, Opener Understanding Supply Law of Supply Producers offer more of a good as its price increases and less as its price falls

Slide 7 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Law of Supply How does the law of supply affect the quantity supplied? –As prices rise, producers will offer more –New suppliers will enter the market in the hopes of making a profit.

Slide 8 Copyright © Pearson Education, Inc.Chapter 5, Section 1 The Law of Supply The law of supply includes two movements: Individual firms changing their level of production Firms entering or exiting the market

Slide 9 Copyright © Pearson Education, Inc.Chapter 1, Opener Understanding Supply Quantity supplied The amount that a supplier is willing and able to supply at a specific price

Slide 10 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Market Entry Checkpoint: Why do firms increase production when the price of a good goes up? –To make more money. Duh. –What type of music is popular now? Why are so many bands/artists supplying this type of music?

Slide 11 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Supply Schedule The supply schedule lists how many slices of pizza one pizzeria will offer at different prices. The market supply schedule represents all suppliers in a market. –What does the individual supply schedule tell you about the pizzeria owner’s decisions? –How does the market supply schedule compare to the individual supply schedule?

Slide 12 Copyright © Pearson Education, Inc.Chapter 1, Opener Understanding Supply variable A factor that can change What are the only two variables in a supply or market supply schedule? Price charged Quantity supplied

Slide 13 Copyright © Pearson Education, Inc.Chapter 5, Section 1 The Supply Graph A supply schedule goes opposite direction than demand. SUPPLY = WUZZ SUP! –A supply curve always rises from left to right because higher prices leads to higher output. –Checkpoint: What are the two variables represented in a supply schedule or supply curve?

Slide 14 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Elasticity of Supply Elasticity of supply, based on the same concept of elasticity of demand, measures how firms will respond to changes in the price of a good. –Elastic When elasticity is greater than one, supply is very sensitive to price changes –Inelastic When elasticity is less than one, supply is not very responsive to price changes.

Slide 15 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Elasticity What is the main factor that determines whether the supply of a good will be elastic or inelastic? –Remember, we are thinking how much/little a business is willing and able to supply Time. In the short run, a firm can’t easily change its output level. Read “Elasticity of Supply in the Short Run” pg 114

Slide 16 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Elasticity in the Short Run In the short run, it is difficult for many firms to change its output level, so supply is inelastic. On the other hand, some businesses are elastic in the short run. Barbershops/salons. Why? As the price of haircuts fluctuates, owners will adjust hours/employees

Slide 17 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Trivia Time! What is this barber shop thingie called? Barber pole!

Slide 18 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Elasticity in the Long Run In the long run, supply can become more elastic. Just like demand, supply becomes more elastic if the supplier has a longer time to respond to a price change. How does a business that is highly elastic respond to a fall in prices?

Slide 19 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Review Now that you have learned how the law of supply affects the quantity supplied, go back and answer the Chapter Essential Question. –How do suppliers decide what goods and services to offer?