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Section 1-Preview
Section Preview
In this section, you will learn that the higher the price of a product, the more of it a producer will offer for sale.
Section 1-Key Terms
Content Vocabulary
• supply
• Law of Supply
• supply schedule
• supply curve
• market supply curve
• quantity supplied
• change in quantity supplied
Academic Vocabulary
• various • interaction
• change in supply
• subsidy
• supply elasticity
Section 1
• Supply is an amount of product offered for sale at various prices.
• Law of Supply: Producers will offer more product at higher prices and less at lower prices
What is Supply?
Law of Supply When the price of a product goes up, quantity supplied goes up. When the price goes down, quantity supplied goes down.
VS 1
Section 1
An Introduction to Supply
Supply can be illustrated by a supply schedule or a supply curve.
Section 1
An Introduction to Supply (cont.)
• Suppliers must determine how much to offer for sale at various prices, taking into account the factors of production.
• Like demand, supply can be shown in the form of a table—a supply schedule.
• When information is plotted on a graph, it forms the supply curve.
Supply of Compact Discs
Section 1
An Introduction to Supply (cont.)
• Normal supply curves have a positive slope—prices go up; quantity supply goes up.
• Economists are more interested in the market supply curve than for a single firm.
Individual and Market Supply Curves
Section 1
An Introduction to Supply (cont.)
• The quantity supplied is the amount producers bring to market at any given price.
• A change in price leads to a change in quantity supplied.
• Although the producer has the freedom to adjust production up or down, the interaction of supply and demand usually determines the final price of a product.
An Introduction to Supply (cont.)
Price of Ice Cream Cone
Quantity Supplied of Ice Cream Cones
Figure 5 Ben’s Supply Schedule and Supply Curve
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
0
2.50
2.00
1.50
1.00
1 2 3 4 5 6 7 8 9 10 11 Quantity ofIce-Cream Cones
$3.00
12
0.50
1. Anincrease in price ...
2. ... increases quantity of cones supplied.
An Introduction to Supply (cont.)
Price of Ice Cream Cones
Quantity Supplied of Ice Cream Cones
1 5
Price of Ice-Cream Cone
Quantity of Ice-Cream Cones0
S
1.00A
C$3.00 A rise in the price
of ice cream cones results in a movement along the supply curve.
Change in Quantity Supplied
An Introduction to Supply (cont.)
Figure 1
Section 1
Change in Supply
Several factors can contribute to a change in supply.
• Change in Supply– A shift in the supply curve, either to the left or right. – Caused by a change in a non-price determinant of
supply.
Section 1
• A change in supply occurs for several reasons.
1.Cost of resources2.Productivity3.Technology4.Taxes 5.Subsidy6.Expectations7.Government regulations8.Number of sellers
Change in Supply (cont.)
A Change in Supply
Figure 7 Shifts in the Supply Curve
Copyright©2003 Southwestern/Thomson Learning
Price ofIce-Cream
Cone
Quantity ofIce-Cream Cones
0
Increasein supply
Decreasein supply
Supply curve, S3
curve, Supply
S1Supply
curve, S2
Change in Supply (cont.)
For an given rental price, quantity supplied is now lower than before.
Change in Supply (cont.)
Figure 3
Section 1
Elasticity of Supply
The response to a change in price varies for different products.
Section 1
• Supply, like demand, has elasticity.
• Supply elasticity measures how the quantity supplied responds to a change in price.
Elasticity of Supply (cont.)
Elasticity of Supply
Figure 4
Section 1
• Supply elasticity has three forms:
– Elastic
– Inelastic
– Unit elastic
Elasticity of Supply (cont.)
Elasticity of Supply
Section 1
• Supply elasticity is based solely on production considerations.
• A firm’s ability to adjust to new prices quickly is likely to be elastic.
• A firm that takes longer to react to a change in prices is likely to be inelastic.
Elasticity of Supply (cont.)
Elasticity of Supply