Supply and its Determinants
Supply Just
like lik e with demand, demand, we are are going to start start with thinking thinking about markets…lik mar kets…like e the Product and Factor Factor Markets Ma rkets from last chapter.
In any market, the Sellers are the Suppliers.
Supply – The willingness and the ability to produce or ser!ice or resource" and sell a product at a range of prices.
Law of Supply – Producers are willing to sell more or something at a higher price.
#asically, it$s the opposite of the %aw of Demand. &s prices
%et$s try to show this on the board… Selling (ans of Soda
1auling #ricks
).*+
)02hour
).+
)342hour
).-+
)3*2hour
).++
)3-2hour
).+
)32hour
)./+
)302hour
).0+
)*42hour
and on…
and on…
5t should look something like like this… S
(hanges in Supply
&gain, it is important to understand that a change in price, only changes the quantity supplied . 5t does not change the supply itself.
This is called a shift along the supply cure.
Factors that Shift Supply Resource Prices
Technology And Productivity
Government Actions
Supply
Number Of Producers
Expectations Of Producers
Price of 5nputs 6esource Prices" 7hen
costs go up, pro8ts go down, so that the willingness to supply also goes down.
9hink
about selling selling cans of coke. coke. 9he input price is how much you originally get the coke for for.. 5f the whole sale price went up to ).-+, how would that change the supply chart:
9echnology2%ab 9 echnology2%abor or Producti!ity Producti!ity &d!ances
in technology and labor producti!ity reduce the number of inputs needed to produce a gi!en supply of goods.
(osts
go down, pro8ts go up, leading to increased supply.
9hink
about hauling bricks. 5f you owned a robot, how would that change the chart:
;
suppliers e
>umber of Suppliers &s
more people decide to supply a good the market supply increases.
9a< 9 a
ta
7hen
go!ernment subsidies (when the government helps you out, like farmers with corn) go corn) go up, costs go down, and pro8ts go up, leading suppliers to increase output.
Decrease in Supply
5ncrease in Supply
(hange in Supply !s. a (hange in the ?uantity Supplied
So in summary…
Supply means how much people will sell of something at any gi!en price.
& change in price will change the 'uantity supplied, but not the supply cur!e itself itself.. 9his is a shift along the supply cure.
9here
are some some things that will cause cause a shift in the supply cure such as… Price
of 5nputs 6esources"
9 9echnology2%a echnology2%abor bor ;
umber
Producti!ity Produc ti!ity
of Suppliers
of Suppliers
So now let$s practice.
John
owns a factory making blue Aeans. Briginally he planned on paying his workers )34 an hour. #ut then he realiCed that wasn$t enough to hire the le!el of skill that he needed. 1e realiCes that he will need to pay them at least )3+ an hour.. 7hat will happen to his hour supply cur!e:
5t
will shift to the left decrease". 9o produce the same 'uantity at any gi!en le!el he will need to charge more.
%et$s say 5 own a record store where 5 buy and sell records. 9hink about the following scenarios. a" ¬her record store opens down the street that also buys used records. >ow 5 ha!e to pay more for the used records before 5 can sell them again.
b" 9he landlord now includes utilities in my rent payment, so 5 no longer ha!e to pay for electricity.
a" My supply cur!e will shift left. Since 5 ha!e to pay more for each record, 5 make less pro8t on e!ery sale. 9his means that for any gi!en price, 5 will be willing to sell fewer records.
b" My supply cur!e will shift to the right. right. Since 5 no longer ha!e ha!e to pay for electricity, my costs are lower.. So now 5 am willing to sell lower more records records at any gi!en price.
9he
go!ernment oEers corn farmers farmers a )3 subsidy for e!ery pound of corn sold. 5nstead of making )* per pound, they now mak make e ). 7hat will happen to the mark market et supply cur!e:
5t
will increase shift right" because 5 now ha!e an incenti!e to supply more.
More Supply Practice BG 75%% >;;D ;591;6 & S1;;9 BF BG P&P;6 B6 & 7159; #B&6D
3. & software company in!ests in a set of fast, new computers that allow employees to test their new programs easily and 'uickly. 715(1 F&(9B6 5S 915S &>D 1B7 75%% 59 &FF;(9 SGPP%:
*. & farmer is deciding how much tobacco and corn to grow on the farm. (ongress recently cut the subsidies that it pays farmers to grow tobacco. 715(1 F&(9B6 5S 915S &>D 1B7 75%% 59 &FF;(9 15S 9B#&((B:
. ou own a company that mak makes es wires. 9he price of copper wir wire e has recently gone up. 715(1 F&(9B6 5S 915S &>D 1B7 75%% 59 &FF;(9 SGPP%:
-. & toolHmaking toolHmaking company hires se!eral workers who got degrees from a technical school, where they learned manufacturing techni'ues. 715(1 F&(9B6 5S 915S &>D 1B7 75%% 59 &FF;(9 SGPP%:
+. & pancake restaurant is successful in a downtown mall. ¬her pancak pancake e restaurant opens up in a building across from the mall parking lot. 715(1 F&(9B6 5S 915S &>D 1B7 75%% 59 &FF;(9 SGPP%:
>ow, let$s take a 'uiC. Please put e!erything away. M&I; SG6; 9B &SI ?G;S95B>S >B7, 5F BG 1&; 91;M.
