1. SUPPLY CHAPTER 5

2. LAW OF SUPPLY SUPPLY: AMOUNT OF GOODS AVAILABLE SUPPLY: AMOUNT OF GOODS AVAILABLE PRICE INCREASES: SUPPLY INCREASES PRICE INCREASES: SUPPLY INCREASES PRICE DECREASES: SUPPLY DECREASES PRICE DECREASES: SUPPLY DECREASES

3. HIGHER PRODUCTION HIGHER REVENUES: ENCOURAGE FIRMS TO PRODUCE MORE HIGHER REVENUES: ENCOURAGE FIRMS TO PRODUCE MORE PIZZA EXAMPLE: PIZZA EXAMPLE: –PIZZA PRICE INCREASES? –PIZZA PRICE DECREASES?

4. SUPPLY SCHEDULE SIMILAR TO A DEMAND SCHEDULE SIMILAR TO A DEMAND SCHEDULE SHOWS RELATIONSHIP BETWEEN PRICE AND QUANTITY SUPPLIED SHOWS RELATIONSHIP BETWEEN PRICE AND QUANTITY SUPPLIED PRICE PER SLICESLICES SUPPLIED PRICE PER SLICESLICES SUPPLIED $.501000 $.501000 $1.001500 $1.502000 $2.002500 $2.503000 $3.003500

5. SUPPLY CURVE A GRAPH OF QUANTITY SUPPLIED OF A GOOD AT DIFFERENT PRICES A GRAPH OF QUANTITY SUPPLIED OF A GOOD AT DIFFERENT PRICES UPWARD SLOPING FROM LEFT TO RIGHT UPWARD SLOPING FROM LEFT TO RIGHT Y AXIS PRICE Y AXIS PRICE X AXIS OUTPUT X AXIS OUTPUT

6. ELASTICITY OF SUPPLY REACTION TO A CHANGE IN PRICE REACTION TO A CHANGE IN PRICE ELASTICITY OF SUPPLY TELLS HOW FIRMS WILL RESPOND TO CHANGES IN THE PRICE OF A GOOD ELASTICITY OF SUPPLY TELLS HOW FIRMS WILL RESPOND TO CHANGES IN THE PRICE OF A GOOD ELASTIC, INELASTIC, UNITARY ELASTIC, PERFECTLY INELASTIC ELASTIC, INELASTIC, UNITARY ELASTIC, PERFECTLY INELASTIC

7. ELASTICITY OF SUPPLY ELASTICITY GREATER THAN 1 = ELASTIC (SUPPLY IS VERY SENSITIVE TO CHANGES IN PRICE) ELASTICITY GREATER THAN 1 = ELASTIC (SUPPLY IS VERY SENSITIVE TO CHANGES IN PRICE) ELASTICITY LESS THAN 1 = INELASTIC (SUPPLY IN NOT VERY SENSITIVE TO CHANGES IN PRICE) ELASTICITY LESS THAN 1 = INELASTIC (SUPPLY IN NOT VERY SENSITIVE TO CHANGES IN PRICE) ELASTICITY = 1 : UNITARY ELASTIC (TOTAL REVENUE REMAINS CONSTANT) ELASTICITY = 1 : UNITARY ELASTIC (TOTAL REVENUE REMAINS CONSTANT)

8. CHANGES IN SUPPLY What causes supply curves to shift to the left or to the right? What causes supply curves to shift to the left or to the right? 1. Cost in production (cost of raw materials) 2. Technology (lower production costs) 3. Subsidies – Government gives payment to producers to promote supply

9. CHANGES IN SUPPLY 4. Taxes – Government can place an excise tax on certain goods 5. Imports 6. Expectations of Prices? If you expected the price of corn to double in 2 months what would you do with your corn if you were a farmer? 7. Competition - # of suppliers in the market