1. Supply

4. Demand – Centers around the Consumers
Supply – Focuses on the Producers

5. What’s the definition of demand?
Review
What’s the definition of demand?

6. SUPPLY - Definition
Quantity of a good or service a producer is WILLING and ABLE to make available for sale at different prices

7. Individual Supply
Qty of a good or service that 1 business will make available at various prices

8. Market Supply-
Total quantity of a good or service that all firms in a market will make available for sale at various prices

9. Goal for Producers = Maximize Profits
(Quantity Sold X Price) – Costs of Production

10. Question You’re selling coffee
You think you can sell it for $.25 a cup. Think of how much effort you’re going to put into your business
What if you could sell it for $4.75 a cup? How much effort will you put into your business?

11. Law of Supply-
The quantity of goods or services supplied will be greater at a higher price than at a lower price

12. Producers will supply for Products they can sell at prices
Law of Supply Cont’d
Producers will supply for
Products they can sell at prices
Producers will supply for
Products they can sell at prices

13. Supply Curve Direct Relationship
Price
Supply
Quantity

14. Change in Quantity Supplied
Caused by an increase or decrease in price
Causes a movement ALONG the supply line
Price
Point A
Point B
Quantity Supplied

15. Change in Supply
Implies a change in the # of units supplied at every price
Causes a shift on the ENTIRE supply line
Price
Qty Supplied

16. Determinants of Supply
Reasons for a Change in Supply
Non-price (having nothing to do with the price they charge) reasons that + or – a business’ willingness or ability to produce

17. Technological Advances-
Allows companies to produce G & S faster, cheaper & better
Increases productivity & efficiency
Examples?

20. What are the 5 Factors of Production?
Review Question
What are the 5 Factors of Production?

21. Change in Cost of Production- Input (Factor) Costs
If the cost of a factor of production goes up, producers may not be able to afford to produce as much as they used to
Cheaper? They can produce more

22. Volunteer an example of a factor of production & tell us what company would be affected by an increase or decrease in the price of that factor of production

24. What happened to the market supply of coffee in the last ten years?

25. What happened to the market supply of doughnuts in the last 8 years?

26. Changes in # of Sellers
Businesses entering & leaving the market changes the market supply for G & S

27. Producer Expectations for the Future
If producers believe that they will be able to charge higher prices in the near future, they will increase supply now to prepare. The opposite is true. Think of 3 examples

31. + or - Taxes & Subsidies
Increases in tax rates placed upon businesses & individuals often lead to businesses to lower their production. Opposite is true
Gov’t subsidies (financial assistance) has the opposite effect (encourages production). Ex. Agricultural products

33. Change in Price of Related Goods
If businesses find that they can charge high prices for producing other G & S, this encourages them to shift production away from the original G & S and more towards the G & S they can charge higher prices for

34. Weather/Natural Disasters
Natural disasters or bad weather will decrease supply
Good weather could increase supply of agricultural products

35. Change in Supply S2
Price S
Decrease: Left S1
Increase: Right
Quantity

36. Price Elasticity of Supply
Measure in the responsiveness of the quantity supplied to changes in the product’s price
Equation
% change in QS
%change in price

37. Remember Q
Over P

38. Elastic Supply
Change in prices will result in a significant change in Quantity Supplied
It’s supply elastic if price elasticity of supply equation is greater than one

39. Elastic Supply Cont’d
Elastic Supply products are usually products that can be made
Quickly
Inexpensively
Using a few, readily available resources
Example: Angels 2014 World Series Championship Souvenirs

40. Elastic Supply Cont’d
Price
Qty Supplied

41. Inelastic Supply
A change in price will result in a minimal change in Quantity Supplied
Price inelastic if calculated value of price elasticity of supply is less than one

42. Inelastic Supply Cont’d
A product has an inelastic supply if productions requires a great deal of
*Time *Money
*Resources that are not readily available
Examples: Gold, Fine Art, Space Shuttles

43. Inelastic Supply Cont’d
Price
Qty Supplied

44. Perfect Inelastic Supply
Exists when producers, regardless of price, cannot increase the quantity supplied
Example: U2 Concert at Staples Center

45. Perfect Inelastic Supply Cont’d
Price
Qty Supplied

46. Unitary Supply Elasticity
% change in the quantity supplied =
% change in price

47. Producer Surplus
Amount that sellers might be willing to sell the G or S for but don’t have to because it’s less than the market price
Area to the left of the supply line and underneath price

48. Measuring Production

49. Output = Products or services produced
Key Terms
Output = Products or services produced
Input = Resources used to produce the products or services

50. All units of a product produced in a given period of time
Total Product
All units of a product produced in a given period of time

51. Average Product
Number of units of output produced per unit of input

52. Average Product Cont’d Equation
Units of output
Units of input

53. Average Product Cont’d
Example:
Total Output Last Year:124,727 Products
Input: 88 Workers that work
5 days a week
50 Weeks a Year

54. Marginal Product
Amount that total product increases or decreases as result of adding one additional unit of an input
Decisions are based on dollar value of additional output compared to cost of additional input

55. Marginal Product Equation
Marginal Product = Change in output
Change in input

56. Marginal Product Cont’d
Example:
90 Workers produced 510 Lamps/Day
91 Workers produced 515 Lamps/Day
91-90
Change in Output
Change in Input

57. Diminishing Marginal Returns/Product
Occurs when units of input are added and the MARGINAL PRODUCT DECREASES.
If even more units of input are added, there will be a point where TOTAL PRODUCT will actually DECREASE (negative returns)

58. 1st - Increasing Returns 2nd – Diminishing Returns
3 Stages to Production
1st - Increasing Returns
2nd – Diminishing Returns
3rd – Negative Returns