Presentation on theme: "A.S 1.3 - Describe the concept of supply. Supply The amount of good or service that a firm is willing to produce at various prices at a certain time The."— Presentation transcript:
Supply The amount of good or service that a firm is willing to produce at various prices at a certain time The main factor that affects supply is price
Price or cost? What do you think the difference is between price and cost? Price= the amount of money producers receive when they sell a good or provide a service. Cost= the amount paid by the producer or seller in order to have the product ready for the market.
Types of Costs for a firm Accounting cost- Payment required in dollar terms (Rent, power, materials, advertising wages etc Opportunity cost- Sacrifice of the next best alternative when making a decision. Economic costs= Accounting costs + Opportunity costs
The Importance of price If you were a producer what would you do if there was a High Price for your product? Low Price for your product?
THE LAW OF SUPPLY As the price of commodities increases, the quantity supplied increases, ceteris paribus As the price of a commodity decreases, the quantity supplied decreases, ceteris paribus
Supply Schedule A supply schedule is a table that shows the quantity of a good or service an individual firm is willing to supply at a series of prices Meres Supply Schedule for chocolate Easter Eggs (weekly) Price ($)Quantity (Easter Eggs) 1.00200 1.50250 2.00300 2.50400 3.00500
Supply Schedule Notes Needs a title showing WHO? WHAT? WHEN? Price is always in the left-hand column and is specified as dollars or cents and should be listed from lowest to highest The right hand column is always quantity and should be specified in its units (litres tonnes easter eggs)
Supply Curve A supply schedule is the graph drawn from the information in the supply schedule Meres Supply Schedule for chocolate Easter Eggs (weelky) Price ($)Quantity (Easter Eggs) 1.00200 1.50250 2.00300 2.50400 3.00500
Supply Curve Notes The graph needs a title showing WHO? WHAT? WHEN? Price is always drawn on the vertical axis Quantity is always drawn on the horizontal axis Both axiss and the curve must be labelled Keep your scale even. Do not take your line beyond the points you have plotted
Now try Yourself From the information provided on the schedule construct a supply curve. (Remember TALL) Freds Supply Schedule for Stereos PriceQuantity 25010 35023 45035 55048
Recap on Profit Most producers supply goods in order to make a profit What is profit? The reward earned by the owner of a business once costs have been taken into account. Profit = Revenue - Cost
So what are costs of production? The amount paid by the producer to get the product ready to sell How much income the firm earns, usually from selling its product or service Revenue=Price x Quantity And then what is Revenue?
Breakeven Price The price that businesses must at least receive for their product so as they dont incur a loss. Any price obtained above breakeven price is profit to the firm. Breakeven Price= Cost of production Level of output
Market Supply Market supply= total supply that all individual firms in the market are willing to produce at a range of prices at a particular point in time. (How much the whole market is willing to produce) Market supply is found by adding up horizontally all the individual producers supply curves and/or schedules
Market Supply example Supply Schedule for Tissues in Sniffsville Price $ per box Store A Quantity (boxes) Store B Quantity (boxes) Store C Quantity (boxes) Market Supply Quantity (boxes) 1.0015307 3.00303715 5.0038 22 7.00454030 52 82 98 115
A Change in Price Under the law of supply, as the price of commodities increases, the quantity supplied increases, ceteris paribus The price change is the cause the change in quantity supplied is the result.
A Change in Price Why do you think as prices fall producers will supply less? Producers supply less as the price for a product decreases because they will choose to use their resources in another way – produce another related product that has a higher price. If a product can be sold at a higher price there is more of a likelihood of earning more profit. For example a sheep farmer moves towards beef farming as the price of sheep decreases but the price of beef is higher
A Change in Price There is a positive relationship between price and supply – this is why the supply curve is upwards sloping As shown by the graph an increase in price will result in an increase in the quantity supplied (its a movement along the curve)
From the schedules below construct a market supply schedule and curve Supply Schedule of lollies for Broughton street Dairy PriceQuantity 11 22 33 44 Supply Schedule of lollies for Sharps Dairy PriceQuantity 11 21 32 44 Supply Schedule of lollies for Coonies Dairy PriceQuantity 12 23 34 46