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Nature of Supply

Nature of Supply. Supply —is the quantity of goods and services that producers are willing to offer at various prices during a given time period. The Quantity Supplied— is the amount of a good or service that a producer is willing to sell at each particular price. The Law of Supply.

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Nature of Supply

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  1. Nature of Supply • Supply—is the quantity of goods and services that producers are willing to offer at various prices during a given time period. • The Quantity Supplied—is the amount of a good or service that a producer is willing to sell at each particular price.

  2. The Law of Supply • Law of Supply—States that producers supply more goods when they can sell them at higher prices and fewer goods when they must sell them at lower prices. • Why?

  3. Profit • Profit—The amount of money remaining after producers have paid for all their costs. • Costs of Production—Include wages, rent, interest on loans, utility costs, raw materials, used to manufacture a product.

  4. Profits and Markets • Profit motive helps direct the use of resources in the entire market. • Ex. Sell bicycles for $150 and company increases production(supply). • Encourages competition to increase its supply of $150 bikes. • Encourages new companies to start up. • All are pursuing profits!

  5. Supply Schedules and Curves • Supply Schedule—Tool that shows the relationship between the price of a good and the quantity producers will supply. • Supply Curve--Plots on a graph the relationship between the price of a good supplied and the quantity producers will supply. • Note: Supply curve always slopes upward. • Note: Demand curve always slopes downward.

  6. Elasticity of Supply • Elasticity of Supply—is the degree to which price changes affect the quantity supplied. • Elastic Supply—Exists when a small change in price causes a major change in the quantity supplied.

  7. Elastic Supply • Products with elastic supply can be: • Made quickly • Inexpensively • Use a few readily available resources • Sports teams apparel—tee shirts,hats • Ex. Super Bowl championship • Demand soars, prices rise, supply increases.

  8. Inelastic Supply • Inelastic supply—exists when a change in a goods price has little impact on the quantity supplied. • Inelastic supply if production requires: • Time • Money • Resources not readily available Ex. Gold, fine art, space shuttles, etc.

  9. Inelastic Supply • Perfect inelastic supply exists when producers, regardless of price, cannot increase the quantity supplied. • Ex. Ocean front lots • 10 lots to sell—regardless of price • Can charge more $ but cannot produce more ocean front lots.

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