Chapter 5

1. Chapter 5 Supply

2. What is Supply? Section 1

3. Supply – The amount of a product that would be offered for sale at all possible prices that could prevail in the market • Law of Supply – The principle that suppliers will normally offer more for sale at high prices and less at lower prices • Supply Schedule – A listing of the various quantities of a particular product supplied at all possible prices in the market • Supply Curve – A graph showing the various quantities supplied at each and every price that might prevail in the market • Market Supply Curve – The supply curve that shows the quantities offered at various prices by all firms that offer the product for sale in a given market • Quantity Supplied – The amount that producers bring to market at any given price • Change in Quantity Supplied – The change in amount offered for sale in response to a change in price • Change in Supply – A situation where suppliers offer different amounts of products for sale at all possible prices in the market • Subsidy – A government payment to an individual, business, or other group to encourage or protect a certain type of economic activity • Supply Elasticity – A measure of the way in which quantity supplied responds to a change in price Key Terms

4. The concept of supply is based on voluntary decisions made by producers, whether they are proprietorships working out of home offices or large corporations operating out of downtown corporate headquarters • For example, a producer might decide to offer one amount for sale at one price and a different quantity at another price Introduction

5. Supply, then, is defined as the amount of a product that would be offered for sale at all possible prices that could prevail in the market. • Because the producer is receiving payment for his or her products, it should come as no surprise that more will be offered at higher prices. • This forms the basis for the Law of Supply, the principle that suppliers will normally offer more for sale at high prices and less at lower prices Introduction

6. The energy crisis of the 1970s encouraged countries to look to nuclear reactors, fueled by uranium, as a new energy source. When public utility companies stockpiled uranium, uranium prices rose as they competed to get adequate supplies. Rising prices for uranium stimulated uranium exploration. Entrepreneur-explorers discovered deposits in Australia, Africa, and North America. Yet, slow expansion of nuclear power along with burgeoning stockpiles of uranium caused uranium prices to fall by the late 1980s to one eighth of the highest price offered ten years before. Did You Know?

7. Supply is the amount of a product that would be offered for sale at all possible prices in the market • The Law of Supply states that suppliers will normally offer more for sale at high prices and less at lower prices An Introduction to Supply

8. An individual supply curve illustrates how the quantity that a producer will make varies depending on the price that will prevail in the market. A market supply curve illustrates the quantities and prices that all producers will offer in the market for any given product or service • Economists analyze supply by listing quantities and prices in a supply schedule (table). When the supply data is graphed, it forms a supply curve with an upward slope An Introduction to Supply

9. Supply Schedule

10. The Market Supply Curve

11. A change in quantity supplied is the change in amount offered for sale in response to a change in price • Producers have the freedom, if prices fall too low, to slow or stop production or leave the market completely. If the price rises, the producer can step up production levels Change in Quantity Supplied

12. A change in supply is when suppliers offer different amounts of products for sale at all possible prices in the market • Factors that can cause a change in supply include: the cost of inputs; productivity levels; technology; taxes or the level of subsidies; expectations; and government regulations Change in Supply

13. A change in supply is when suppliers offer different amounts of products for sale at all possible prices in the market • Factors that can cause a change in supply include: the cost of inputs; productivity levels; technology; taxes or the level of subsidies; expectations; and government regulations Change in Supply

14. Supply is elastic when a small increase in price leads to a larger increase in output—and supply • Supply is inelastic when a small increase in price cause little change in supply • Supply is unit elastic when in price causes a proportional change in supply Elasticity of Supply

15. Determinants of supply elasticity are related to how quickly a producer can act when the change in price occurs. If adjusting production can be done quickly, the supply is elastic. If production is complex and requires much advance planning, the supply is inelastic. Another factor is substitution: if substituting for a given product is easy, the supply is elastic; if it is difficult to substitute, the supply is inelastic. Elasticity of Supply

16. Elasticity of Supply

17. Elasticity of Supply

18. Elasticity of Supply