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Supply

Supply. Chapter 4 Price Effect Market Supply Price Elasticity Change in Supply. Supply. The various amounts of something a producer is willing and able to sell at different prices at a given time General rule: Sell a lot at a high price Sell a little at low price. S. Price. Quantity.

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Supply

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  1. Supply Chapter 4 Price Effect Market Supply Price Elasticity Change in Supply

  2. Supply • The various amounts of something a producer is willing and able to sell at different prices at a given time • General rule: • Sell a lot at a high price • Sell a little at low price

  3. S Price Quantity

  4. Price Effect • As price changes, quantity supplied changes • As each new quantity supplied is added, the marginal cost of production increases • Thus, as quantity goes up, so does the price and vice versa • Price Effect: price changes effect quantity changes

  5. S Price Quantity

  6. Market Supply The sum of all individual supplies in a given market at a particular time All suppliers of a given product included in the figures given

  7. Price Elasticity • The degree in which price changes effect quantity supplied • Small price changes that effect quantity supplied A LOT is elastic • Small price changes that have little to no effect on quantity supplied is inelastic

  8. Two Reasons for Elasticity: • Availability of Inputs • Adjust for time • Examples: • Pizza: Elastic (availability of Subs) • Flu Vaccine: Inelastic (adjust for time)

  9. S Price Inelastic P2 Big Change P1 Q1 Q2 Quantity Small Change

  10. Elastic Price S P2 Similar Change P1 Q1 Q2 Quantity Similar Change

  11. Change in Supply • Change is supply results in quantity changes at all prices (a new line is drawn on the graph)

  12. S1 S2 Price Quantity S1 to S2 = Increase in Supply

  13. S2 S1 Price Quantity S1 to S2 = Decrease in Supply

  14. Change in supply occurs when: • Change in marginal cost of production (improving production methods, new and cheaper materials & equipment) 2.Change in number of sellers/producers (new competition) 3.Change in expectations (expecting future changes – politics, new laws and tax regulations, war, etc)

  15. 4. Substitutes: if price of a good goes up, the supply of its substitute goes down [QS of the 1st good goes up due to the price increase – LAW OF SUPPLY – thus the 2nd good must cut back on production so additional quantities of the 1st good can be produced] 5. Compliments: if price of a good goes up, the supply of its compliment also goes up [QS of the 1st good goes up due to price increase – LAW OF SUPPLY – thus when more of the 1st good is made, more of the 2nd good is automatically produced]

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