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Price Effect Market Supply Price Elasticity Change in Supply

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Presentation on theme: "Price Effect Market Supply Price Elasticity Change in Supply"— Presentation transcript:

1 Price Effect Market Supply Price Elasticity Change in Supply

2 Supply The various amounts of something a producer is willing and able to sell at different prices at a given time General rule: Sell a lot at a high price Sell a little at low price

3 S Price Quantity

4 Law of Supply Other things equal, as price rises the quantity supplied rises Explanations: Revenue implications Marginal cost 3-4

5 Price Effect As price changes, quantity supplied changes
As each new quantity supplied is added, the marginal cost of production increases Thus, as quantity goes up, so does the price and vice versa Price Effect: price changes effect quantity changes

6 S Price Quantity

7 All suppliers of a given product included in the figures given
Market Supply The sum of all individual supplies in a given market at a particular time All suppliers of a given product included in the figures given

8 Change in Supply Change in supply results in quantity changes at all prices (a new line is drawn on the graph)

9 S1 S2 Price Quantity S1 to S2 = Increase in Supply

10 S2 S1 Price Quantity S1 to S2 = Decrease in Supply

11 Determinants of Supply
Resource prices Technology Taxes and subsidies Prices of other goods Substitutes & Compliments Producer expectations Number of sellers 3-11

12 Change in Quantity Supplied
Individual Supply Supply Can Increase or Decrease P 6 5 4 3 2 1 S3 Individual Supply S1 Change in Quantity Supplied S2 P Qs $5 4 3 2 1 60 50 35 20 5 Price (per bushel) Change in Supply Q Quantity Supplied (bushels per week) 3-12

13

14 Price Elasticity The degree in which price changes effect quantity supplied Small price changes that effect quantity supplied A LOT is elastic Small price changes that have little to no effect on quantity supplied is inelastic

15 Two Reasons for Elasticity:
Availability of Inputs Adjust for time Examples: Pizza: Elastic (availability of inputs) Flu Vaccine: Inelastic (adjust for time)

16 S Price Inelastic P2 Big Change P1 Q1 Q2 Quantity Small Change

17 Elastic Price S P2 Similar Change P1 Q1 Q2 Quantity Similar Change

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