Supply and Elasticity of Goods

1. Supply Warm Up: What is a good you can LEAST do without? How much do you pay now, and how much would you be willing to pay for it before you stop using it? Explain whether this item is elastic or inelastic for you.

2. 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.

3. 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. • Ex. MP3 players at $300 vs. $200 • Profit—The amount of money remaining after producers have paid for all their costs.

4. Market Supply Curve 3.00 2.50 2.00 1.50 1.00 .50 0 Supply Price (in dollars) 0 500 1000 1500 2000 2500 3000 3500 Output (slices per day)

5. Production Costs • Fixed Cost – cost that does not change, no matter how much of a good is produced • include rent, buildings, machinery, etc. • Variable Cost – a cost that rises or falls depending on how much is produced • include wages, utilities, materials used in production, etc

7. Production Costs Production Costs Beanbags (per hour) Beanbags (per hour) Fixed cost Fixed cost Variable cost Variable cost Total cost (fixed cost + variable cost) Total cost (fixed cost + variable cost) Marginal cost Marginal cost Marginal revenue (market price) Marginal revenue (market price) Total revenue Total revenue Profit(total revenue – total cost) Profit(total revenue – total cost) 0 1 2 3 4 0 1 2 3 4 $36 36 36 36 36 $36 36 36 36 36 $0 8 12 15 20 $0 8 12 15 20 $36 44 48 51 56 $36 44 48 51 56 — $8 4 3 5 — $8 4 3 5 $24 24 24 24 24 $24 24 24 24 24 $0 24 48 72 96 $0 24 48 72 96 $ –36 –20 0 21 40 $ –36 –20 0 21 40 5 6 7 8 5 6 7 8 36 36 36 36 36 36 36 36 27 36 48 63 27 36 48 63 63 72 84 99 63 72 84 99 7 9 12 15 7 9 12 15 24 24 24 24 24 24 24 24 120 144 168 192 120 144 168 192 57 72 84 93 57 72 84 93 9 10 11 12 9 10 11 12 36 36 36 36 36 36 36 36 82 106 136 173 82 106 136 173 118 142 172 209 118 142 172 209 19 24 30 37 19 24 30 37 24 24 24 24 24 24 24 24 216 240 264 288 216 240 264 288 98 98 92 79 98 98 92 79 Production Costs • Total Cost = fixed costs + variable costs • Marginal Cost – cost of producing one more unit of good • Total Cost = fixed costs + variable costs • Marginal Cost – cost of producing one more unit of good

8. 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.

9. 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.

10. 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.

11. Shift to the “Right”

12. Shift to the “Left”