Why does supply increase as price increases? Lets think about it. If you could tutor a kid after school, would you do it for… $1/hr? $5/hr? $7.50/hr $10/hr? $20/hr? If yes, is this price high enough where you would be willing to work more than 1 hr/week? How about 5 hours at this price? Or 20 hours? $30/hr? $50/hr? $100/hr? $250/hr?
Duh The supply of students willing to stay after school for $250/hr is much greater than the supply willing to stay for $1/hr
Does supply apply only to labor? In other words, as the price increases, would the production of GOODS also increase? Personal Examples SUPPLY SCHEDULE OR SUPPLY CURVE?
Classwork Ch. 5.1 Definition Subsidy Identify and briefly describe the 7 reasons why changes in supply occur (p. 116-118).
Reasons for Change in Supply? Cost of Inputs Productivity Technology Taxes and Subsidies Expectations Government Regulations Number of Sellers
Supply Elasticity If a small increase in price leads to a relatively larger increase in output, supply is ____________. ELASTIC INELASTIC
Difference between demand & supply elasticity? Not much D.E. – quantities are being purchased S.E.– quantities are brought to market for sale Dont forget: Elasticity is simply a measure of the way quantity adjusts to a change in price.
I need a… Explain why the first is inelastic and the second is elastic.
Tickle Me Economics Dec. 1996: Tickle Me Elmo was the hottest toy of the season Regular price--$23.99; Advertised in newspapers for as much as $500 Did the company want to supply more? Since manufacturing could not keep up with the demand, there was a temporary ____________ of supply. INELASTICITY
The supply curve for products that can be made quickly without huge amount of capital and skilled labor is ________. ELASTIC Kites, candy, etc. INELASTIC Planes, shale oil ***Unlike demand, ONLY production considerations determine supply elasticity.*** (Substitutes, ability to delay purchase, etc. are not important for supply elasticity)
Finally (for this section)… Unit Elastic Supply KEY WORD: PROPORTIONAL (change)