1. Chapter 5.1/5.3/5.4
Supply

2. Intro to Supply
Supply – the amount of a product offered for sale at all possible prices
Law of Supply – as P goes up, Qs will go up; or that suppliers usually offer more for sale at higher prices
Supply schedule – lists various Q’s of a product supplied at all possible P’s
Supply Curve – graph of the same

3. Figure 5 Ben’s Supply Schedule and Supply Curve
Price of
Ice-Cream
Cone
$3.00
2.50
1. An
increase
in price
...
2.00
1.50
1.00
0.50 1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream Cones 2.
...
increases quantity of cones supplied.

4. Individual vs. Market S curve
Individual = one producer
Market = Q’s offered at various prices by ALL firms offering the same product

5. Change in Qs
Change in Qs is the change in amount offered for sale in response to a change in price
Represented by movement along the S curve

6. Change in Quantity Supplied
Price of Ice-Cream Cone S C
$3.00
A rise in the price of ice cream cones results in a movement along the supply curve. A
1.00
Quantity of Ice-Cream Cones 1 5 30

7. Change in Supply
When suppliers offer different amounts of a products at all prices
Represented by a shift in the S curve – Increase - right Decrease – left

8. Figure 7 Shifts in the Supply Curve
Price of
Supply curve, S 3
Ice-Cream
curve,
Supply S 1
Cone
Supply
curve, S 2
Decrease
in supply
Increase
in supply
Quantity of
Ice-Cream Cones

9. Reasons for Change in Supply
Cost of Inputs – if P of an input goes down, S increases
Productivity – if working more efficiently, S can increase
Technology – new technology usually increases S
Taxes/Subsidies – increase in taxes would decrease S; adding subsidies can increase S

10. Cont’d
Expectations – If producers think the P of their product will go up in the future, they may withhold some S now
Gov’t Regulations – more regulations usually mean a decrease in S
# of sellers – If more producers enter market, S increases

11. Elasticity of Supply
Measures how responsive the Qs is to a change in price based on the producers
Elastic – Change in Qs is larger than change in P (in%)
Inelastic – Change in Qs is smaller than change in P (in%)
Unit Elastic – change in Qs and Change in P are the same proportion

12. Determinants of S Elasticity
All depends on how quickly a firm can adjust to new prices
If the production process is very complicated, then S is usually inelastic
Supply tends to be more elastic in the long run because firms can adjust more over time