Aim: What is the nature of supply?

Do Now: Imagine you own a pizzeria and the price you are able to sell your slices for has just gone up. You can now

earn $2 a slice! How will you adjust your quantity supplied in order to create a great profit?

HW: Chapter five Section 3, Read 116-120. Copy and answer questions 1-3 pg 120.

Supply and Quantity Supplied• Supply the amount of a good or service that

producers are willing and able to offer for sale at all possible prices during a period of time, all else constant. (THE ENTIRE CURVE)

• The quantity supplied is the amount sellers are willing and able to offer for sale during a period of time at a specific price, all else constant.

A change in the Quantity supplied is a movement along the supply curve.

LAW OF SUPPLYThe quantity of a well-defined good or service that

producers are willing and able to offer for sale during a particular period of time increases as the price of the good or service increases and decreases as the price decreases, everything else held constant. (Direct relationship)

• As Price Rises…

…Quantity Supplied Rises

• As Price Falls…

…Quantity Supplied Falls

Why do you think that is?

Representations of Supply• Supply Schedule: A table or list of the prices

and corresponding quantities supplied of a particular good or service. It is the price-quantity relationship presented in tabular form.

• Supply Curve: A graph of the supply schedule with price on the vertical axis and quantity demanded on the horizontal axis.

Supply Schedule and Supply Curve for DVDs

Market Supply Curve• Individual supply Curve:

represents the price-quantity combinations for a single seller-like the one we just saw for CDs

• Market Supply Curve: represents the price-quantity combinations for all sellers of a particular good. (for the whole market)

Deriving a Market Supply Schedule and a Market Supply Curve

Create your own supply schedule and graph!

• Imagine you are a supplier of an item (you choose) First create a table with price in the left column, and quantity supplied in the right column.

• Then create a graph.

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Qo

$5

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$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

I am a supplier of Corn!

P

Qo

$5

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Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

35

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Qo

$5

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60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

P

Qo

$5

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10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

Plot the PointsGRAPHING SUPPLY

Discussion:

• What does a supply curve look like?

• Why? What is the relationship between price and quantity supplied?

• How is this different than the relationship between price and quantity demanded?

Let’s Compare the two curves!

Aim: What are the factors that influence a change in supply?

• HW Chapter 6-1; Read 125-131. Copy and answer 1-2 pg 131. Test Wed Read 134-136.

• Do Now: You are a pizzeria owner (again)…You sell your pizza for $2 a slice, and you like to produce fifty slices a day.

• What are some factors that might decrease your supply curve? Increase in the price of ingredients. So when you increase the cost of production- costs more to produce, that will decrease the supply curve….

Changes in Supply

• Change in Quantity Supplied - movement along the same supply curve in response to a price change.

• Change in Supply - shift in entire supply curve.

SP

Qo

$5

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$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

What if

Supply

Increases?

GRAPHING SUPPLY

SP

Qo

$5

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10 20 30 40 50 60 70 80

Price of Corn

Quantity of Corn

$54321

60503520 5

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CORN

8070604530

S’Increase

in

Supply

Increase

in Quantity

Supplied

GRAPHING SUPPLY

SP

Qo

$5

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1

10 20 30 40 50 60 70 80

$54321

60503520 5

P QS

Price of Corn

Quantity of Corn

CORN

What if

Supply

Decreases?

GRAPHING SUPPLY

SP

Qo

$5

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10 20 30 40 50 60 70 80

$54321

60503520 5

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Price of Corn

Quantity of Corn

CORN

S’

453020 0 --

Decrease

in

Supply

Decrease

in Quantity

Supplied

GRAPHING SUPPLY

Supply Curves When There is No Time to Produce More or No More Can Be Produced

Factors Which Can Shift the Supply Curve

Prices of RelatedGoods and Services

Number Of

Producers

ExpectationsOf

Producers

TechnologyAnd

Productivity

ResourcePrices

Supply

Taxes and Subsidies

DETERMINANTS OF SUPPLY

• Resource Prices - –a rise in resource prices will

cause a decrease in supply or leftward shift in supply

–A decrease in resource prices will cause an increase in supply or rightward shift in the supply curve

DETERMINANTS OF SUPPLY

Technology - a technological improvement (techniques of production) enable firms to produce units of output with fewer resources. (i.e computers)- will adjust supply curve to the right.

Taxes & Subsidies - A business tax is treated as a cost, so decreases supply curve. Taxes on an item will adjust the supply curve to the left.

Government Subsidies

• Sometimes the government SUBSIDIZES a business or market. The producer gets paid to produce.

• What are some reasons why the government may have to subsidize? During wartimes if there is a shortage, we subsidize alternate energy to help the pollution problem….

• How do subsidies affect the supply curve- shift to the right-more supply

SUBSIDIES CONTINUED

• SUBSIDIES LEAD TO AN INCREASE IN THE SUPPLY CURVE BECAUSE THEY DECREASE THE COST OF THE PRODUCTION

GOVERNMENT REGULATION

• Government regulation often increases the cost of production, thereby decreasing supply.

• Examples of government regulation:– Environmental requirements

Can we think of other forms of regulation that would increase production costs? Minimum wage

Supply curve will move to the left.

DETERMINANTS OF SUPPLY

Price Expectations - expectations about the future price of a product can influence producers to increase or decrease current supply.

Future Expectation

• Say you expect that the price of pizza is going to rise next week.

• You would move supply to the left currently (then to the right later)

Global Economy

• Because we import goods, often additional costs are added. AN increase in the wages of a Chinese worker would increase production costs of that item thereby decreasing the supply to the American market. The curve moves to the left.

DETERMINANTS OF SUPPLY

Number of Sellers – the larger the number of suppliers, the greater the market supply

Prices of Related Goods - if the price of substitute production good rises, producers might shift production toward the higher-priced good, causing a decrease in supply of the original good.

Final DIscussion

• What are the factors that alter the supply curve?

• Say the cost of cheese went up and you are the pizza maker.

• Draw your original supply curve S1, the draw what your second supply curve S2 would be.

• Which direction did your curve move?

DETERMINANTS OF SUPPLY

• Resource Prices

• Technology

• Taxes & Subsidies

• Prices of Other Goods

• Price Expectations

• Number of Sellers

Combining

with

Demand

Aim: How do supply and demand create a balance in the market?

• HW chapter 6 sec 2- Read 133-137. Complete #3 pg 137

• Do Now: What happens when the quantity supplied equals the quantity demanded?

• What is that called?

Equilibrium• Equilibrium is the price and quantity at which

the quantity supplied and the quantity demanded are equal.

• A market is said to be in disequilibrium at all points at which the quantities demanded and supplied are not equal.– A surplus occurs whenever Supply>Demand.– A shortage occurs whenever Demand>Supply.– Surpluses and shortages can be resolved with price

changes which lead to adjustments in .

Let’s Compare the two curves!

When Supply is greater than demand=Surplus

When demand is greater than supply=shortage

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Qo

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P QD

$54321

2,0004,0007,000

11,00016,000

$54321

12,00010,000

7,0004,0001,000

D

P QS

Price of Corn

Quantity of Corn

CORN

MARKET

CORN

MARKET

Market Clearing Equilibrium

MARKET DEMAND & SUPPLY at EQUILIBRIUM

Supply and Demand

Intersect

Market Price

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$5

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$54321

2,0004,0007,000

11,00016,000

$54321

12,00010,000

7,0004,0001,000

D

P QS

Price of Corn

Quantity of Corn

CORN

MARKET

CORN

MARKETSurplusAt a $4 price

more is being

supplied than

demanded

MARKET DEMAND & SUPPLY Disequilibrium

At which price will there be an equilibrium?

117

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Qo

$5

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P QD

$54321

2,0004,0007,000

11,00016,000

$54321

12,00010,000

7,0004,0001,000

D

P QS

Price of Corn

Quantity of Corn

CORN

MARKET

CORN

MARKET

At a $2 price

more is being

demanded than

supplied

Shortage

MARKET DEMAND & SUPPLY

117

SP

Qo

$5

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2 4 6 8 10 12 14 16

P QD

$54321

2,0004,0007,000

11,00016,000

$54321

12,00010,000

7,0004,0001,000

D

P QS

Price of Corn

Quantity of Corn

CORN

MARKET

CORN

MARKET

Shortage

MARKET DEMAND & SUPPLY Surplus

By Changing price we move to equilibrium!

Equilibrium (Table)-Fill in the Status as Surplus or Equilibrium

Price

Per DVD

Quantity Demanded

Quantity Supplied

Status-Surplus/Equilibrium

Price Change

$5 30 102 Price Falls

$4 48 84 Price Falls

$3 66 66 No Change

$2 84 48 Price Rises

$1 102 30 Price Rises

The Answers

Price

Per DVD

Quantity Demanded

Quantity Supplied

Status-Surplus/Equilibrium

Price Change

$5 30 102 Surplus Price Falls

$4 48 84 Surplus Price Falls

$3 66 66 EQUILIBRIUM No Change

$2 84 48 Shortage Price Rises

$1 102 30 Shortage Price Rises

Shifts in Supply

• Since Market Equilibrium occurs at the intersection of the demand and supply curve-a shift of the entire supply curve will change the equilibrium price.

• A change in supply (either to the left or right) will set the market in motion to form a new equilibrium-a new price and quantity sold.

Price Floors and Ceilings• Price Floor: price is not allowed to

decrease below a certain level.Examples: minimum wage, agricultural price supports.

• Price Ceiling: price is not allowed to increase above a certain level. Example: rent controls.

Example of how a supply shift shifts price. Pgs 134-135

• An Increase in technology has decreased the cost of production for CD players overtime. Producers can produce more CD players-increasing the supply curve. Say they went from offering 2 million cd players to 4 million cd players- But the demand is still at 2 million.

• The suppliers now have to lower their prices to reach a new equilibrium-this will increase the demand (a decrease in price increases demand) to meet the supply= new equilibrium.

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Output in Millions

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ce

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supply 2

demand

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S1

S2

D

Impact of Increase Demand

• If the demand curve shifts to the right causing an increase in demand (shortage), prices will rise to meet a new equilibrium. Suppliers will raise prices-and an increase in prices will increase the supply- Meeting at a new equilibrium!

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supply

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d2S

1) An excess in supply is called a_______

2) When supply does not meet demand it is called a _______

3) If Supply curve increases, suppliers will have to ______ their prices which leads to a ______ in quantity demanded.

4) If Demand increaes, the prices will_______ and eventually quantity supplied will ________ to meet a new equilibrium

Final Discussion

Rent Controls

A Price Floor