Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity...
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Transcript of Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity...
![Page 1: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/1.jpg)
Chapter 5 - Supply
What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply = Demand
![Page 2: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/2.jpg)
DEFINITION:
Supply:
a schedule or curve shows the relationship between price and
quantity: the quantity producers are willing to supply at each of a series of prices
![Page 3: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/3.jpg)
Law of Supply:
As price increases, quantity supplied increases.
Assumption: competitive industry Direct relationship between price & quantity Results in an upward sloping curve
![Page 4: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/4.jpg)
Supply Curve:
![Page 5: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/5.jpg)
Case Study: Sport Socks
![Page 6: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/6.jpg)
Case Study: Answer #1
![Page 7: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/7.jpg)
Case Study: Sport Socks
![Page 8: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/8.jpg)
Case Study: Sport Socks
![Page 9: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/9.jpg)
Determinants of Supply:Supply Shifters:
1. Technology Improvements in technology = increased supply Increased efficiency = increased supply
2. Number of Sellers New firms, imports = increased supply
3. Change in Costs Change in resource prices (higher costs = decreased
supply) Taxes / subsidies
![Page 10: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/10.jpg)
Determinants of Supply (cont’d):Supply Shifters:
4. Weather/Environment Certain industries, eg. agriculture, tourism Natural disasters, eg. Katrina destoroying production
facilities
5. Suppliers’ Expectations Expectations of future price changes affect supply If future prices expected to rise, producers may
produce more
![Page 11: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/11.jpg)
Change in Supply:
![Page 12: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/12.jpg)
Change in Supply:
![Page 13: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/13.jpg)
Change in Supply:
![Page 14: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/14.jpg)
Supply v. Quantity Supplied:
Change in Supply: Caused by a change in one or more determinants of
supply Shifts entire supply curve
Change in Quantity Supplied: Caused by change in price Movement from one point to another along an existing
supply curve
![Page 15: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/15.jpg)
DEFINITION:
Elasticity of Supply:
• A measure of how much quantity supplied changes in response to a change in price.
![Page 16: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/16.jpg)
Elastic Supply:
• If a given change in Price causes suppliers to makerelatively large changes in Quantity Supplied, supply is elastic.
• Suppliers can easily adjust output• Additional resources (labour, capital, natural resources)
are available• Elasticity of supply tends to increase over time
![Page 17: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/17.jpg)
Inelastic Supply:
• If a given change in Price causes suppliers to makeonly small changes in Quantity Supplied, supply is inelastic.
• Suppliers cannot easily adjust output• Additional resources (labour, capital, natural resources)
are unavailable• Suppliers face rising costs• Supply is most inelastic in the short run
![Page 18: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/18.jpg)
Price Elasticity of Supply:
A measure of the responsiveness of suppliers to a change in price.
If Es is greater than 1, demand is elastic
If Es is less than 1, demand is inelastic
If Es is = 1, demand is unitary
![Page 19: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/19.jpg)
Price Elasticity of Supply:
CALCULATING COEFFICIENT OF ELASTICITY:
Es = % change in Q
% change in P
% change in Q = Q2–Q1 (Q2+Q1)/2
% change in P = P2–P1 (P2+P1)/2
![Page 20: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/20.jpg)
Case Study: Sport Socks
Calculate the coefficient of elasticity from:a) $6 to $7b) $5 to $4
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Case Study: AnswerCoefficient of elasticity from:
a) $6 to $7:
% change in P = P2–P1 (P2+P1)/2
% change in Q = Q2–Q1 (Q2+Q1)/2
Es = % change in Q % change in P
b) $5 to $4: Es = .08/.22=.36
= 7–6 = 1/6.5 = .15 (7+6)/2
= 16k-15k =1k/15.5k=.06 (16k+15k)/2
Es = Q =.06/.15=.43 P
![Page 22: Chapter 5 - Supply What is Supply? Law of Supply Determinants of Supply Change in Supply v. Quantity Supplied Elasticity of Supply Equilibrium: Supply.](https://reader036.fdocuments.us/reader036/viewer/2022081420/56649e0e5503460f94af84cd/html5/thumbnails/22.jpg)
Equilibrium Price:
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Equilibrium Price: