5.1 What is Supply

7/27/2019 5.1 What is Supply

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Understand the difference between the

supply schedule and the supply curve. Explain how market supply curves are

obtained. Specify the reasons for a change in

supply.

5.1 What Is Supply?

Objectives:
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Economics and YouAbout how many hours do you spend studying

every night? How many hours would you study ifyou were paid $1 an hour? $10 an hour? If youwill study more for a higher price, you arefollowing the Law of Supply.


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Introduction

Supply - the amount of a product that

would be offered for sale at all possibleprices that could prevail in the market.

Because the producer is receivingpaymentfor the products, its no surprise that morewill be offered at higher prices.

Law of Supply - the principle that suppliers

will normally offer more for sale at highprices and less at lower prices.


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An Introduction to Supply

An individual supply curve shows howthe quantity that a producerwill makevaries depending on the price that willprevail in the market.

A market supply curve shows thequantities and prices that all producerswill offer in the market for any givenproduct or service.


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The Supply Schedule

Figure 5.1Figure 5.1

When the supplydata is graphed, itforms a supplycurve with anupward slope.


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The Market Supply Curve



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Discussion Question

How do you explain that prices andquantities move in the same directionin a supply schedule?

Producers will produce highquantities at the highest prices andlow quantities at the lowest prices.


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Producers have the freedom, if prices falltoo low, to slow or stop production orleave the market completely. If the pricerises, the producer can step up productionlevels.

A change in quantity supplied is the

change in amount offered for sale inresponse to a change in price.

Change in Quantity Supplied


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Discussion Question

What steps do you suppose aproducer must go through in setting anintroductory price for a product it bringsto the market for the first time?

Answers will vary but students mayindicate that the producer must studythe pricing system for similar

products and risk that competingproducers, in short order, will offer alike product at a lower price.


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A change in supply is when suppliers

offer different amounts of products forsale at all possible prices in the market.

Change in Supply



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Change in Supply (cont.) Factors that can cause a change in

supply include: the cost of resources;

productivity levels;

technology; taxes or the level of subsidies;

Expectations;

government regulations.


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Discussion Question

Why does using new technologyalmost always increase supply?

It generally leads to greaterefficiency, which lowers productioncosts, even though producers must

initially train workers and adapt orcreate new production processes thataccommodate the new technology.


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Elasticity of Supply

Figure 5.4aFigure 5.4a

Supply is elastic when a small increase in

price leads to a larger increase in outputand supply.


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Elasticity of Supply (cont.)

Figure 5.4bFigure 5.4b

Supply is inelastic when a small increasein price cause little change in supply.


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Figure 5.4cFigure 5.4c

Supply is unit elastic when change in pricecauses a proportional change in supply.


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Figure 5.4dFigure 5.4d


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Determinants of supply elasticity are

related to how quickly a producer can actwhen the change in price occurs.

If adjusting production can be donequickly, the supply is elastic.

If production is complex and requiresmuch advance planning, the supply isinelastic.

Another factor is substitution: ifsubstituting for a given product is easy, thesupply is elastic; if it is difficult tosubstitute, the supply is inelastic.



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Discussion Question

What is the difference betweendemand elasticity and supplyelasticity?

Both measure the way quantity(whether bought or produced) adjuststo a change in price.

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5.1 What is Supply

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