“Chapter 5: Supply” Focus during this chapter – How producers act

Part B: Section 5.1 Outline “Understanding Supply”

A. The Law of Supply 1. Market Entry: More producers join a particular market when profitability is evident. a. example: disco music and grunge music.

A. The Law of Supply 2. Quantity Supplied vs. Supply: A change in a good’s price from one row to another in the same supply schedule does not change the supply, but changes the quantity supplied

Supply Schedule for Ethan’s Stuffed Animals

B. Supply and Elasticity 1. When elasticity is greater than one, and supply is very sensitive to changes in price, the supply is said to be elastic. – EASIER TO CHANGE SUPPLY a. In the long run, most suppliers are more elastic

B. Supply and Elasticity 2. When elasticity is less than one and supply is not sensitive to changes in price, the supply is said to be inelastic: HARDER TO CHANGE SUPPLY a. In the short run, most suppliers are more inelastic

3. An example of inelasticity: An Orange Grove a. Supply is inelastic when a change in output can not be quickly adjusted b. An orange grove needs time to adjust its supply.

4. An example of elasticity: A barbershop a.Supply is elastic when a change in output can be quickly adjusted b.If the price of a haircut rises, barbershops can hire new workers quickly; The barbershop can increase its quantity supplied quickly.

Finish “Part C Completion” in your packet