Supply Notes

1. Supply Notes

2. P1 P2 Q2 Q1 Quantity Supplied • Is the quantity of a good or service producers are willing and able to sell at the particular price during a specified time period As price decreases, quantity supplied decreases

3. Decrease in Supply Increase in Supply Supply Is the quantities of a good or service producers are willing and able to sell at various prices during a specified period of time.

4. Relationships • As price , Quantity Supplied • As price , Quantity Supplied • The relationship is ___________________ • This relationship is called the_____ _____ ____________ • The supply curve is generally _________-ward sloping from left to right DIRECT LAW OF SUPPLY UP

5. Explanation SUPPLY • A _________ curve is generally upward sloping because of the ____ of ___________ _____________ _________. Each additional unit produced will cost _____ and ______ as resources are _________ from the production of another __________; therefore, producers must receive a ________ price to encourage ________ production. Because of the increasing ______ associated with increased production, higher prices __________ production; lower prices __________ production. LAW INCREASING MARGINAL COSTS MORE SHIFTED MORE PRODUCT HIGHER GREATER COSTS ENCOURAGE DISCOURAGE

6. Price Elasticity of Supply • Price elasticity of supply is the ______ of responsiveness of QS (________ _______) to a change in ______ • The more responsive the QS is to a change in price, the more ________ the supply • The less responsive the QS is to a change in price, the more ________ the supply DEGREE QUANTITY SUPPLIED PRICE ELASTIC INELASTIC

7. Non-price Determinants of Elasticity of Supply • The main determinant of elasticity of supply is ______. (How much _____ is available for producers to ______ resources from the production of one product to another to ________ to a change in price?) TIME TIME SHIFT ADJUST

8. Immediate Market Period (now) NO • ____ time to adjust production; therefore, there is ___ immediate response (QS) to a price _______. If a change in price results in no change in ____, the supply is ____________. NO CHANGE QS INELASTIC EX: If the price of gas goes up without warning, then Toyota cannot adjust their factories to produce more Prius and less Tundras

9. THE SHORT RUN (some time to adjust) • Variable resources (land and labor) can be shifted to provide some responses to a change in _______; however, there is not enough time to add new _____________ or build a new _________ (fixed price resources). In the short run, relative to the immediate market period, the supply becomes less ___________ and more __________ PRICE EQUIPMENT FACTORY INELASTIC ELASTIC EX: If Toyota has some warning that the price of gas is going to go up, then they can send extra workers to the Prius’s factory from the Tundra’s factory

10. Long RunTime to adjust both variable and fixed resources • In the long run, supply becomes much more responsive; therefore, more __________ as time increases. • Variable resources- land and labor • Fixed resources- factory and equipment (capital resources) ELASTIC EX: If Toyota has a lot of warning that the price of gas is going to go up, then they can convert the Tundra factory into a Prius factory.

11. P1 P2 Q2 Q1 A change in Supply vs. a change in Quantity Supplied • A change in quantity supplied is caused by a change in PRICE, illustrated by ___________ along the supply curve. movement Decrease in quantity supplied

12. Decrease in Supply Increase in Supply A change in Supply vs. a change in Quantity Supplied • A change in supply is caused by a change in a ___________ ______________ and can be illustrated by a ________ in the supply curve to the ______ for a decrease or to the _________ for an increase NON-PRICE DETERMINANT SHIFT LEFT RIGHT

13. Non-price determinant of supply • The number of sellers in the marketplace ____# _____S _____# ____S _____________ relationship • Change in the price of another good that could be produced instead of the good _____P (wheat) _____S (corn) _____P (wheat) _____S (corn) _____________ relationship

14. Non-price determinant of supply • Expectations about the future • No generalizations can be made about what all suppliers will do; it depends on the type of industry. • Example 1- wheat farmers, expecting prices to increase in the future, will withhold wheat (store it) from the current market at each and every price, causing the current supply of wheat to decrease. • Example 2- In some industries, the expectation that prices will rise in the future acts as an incentive to increase current production, causing the supply to increase.

15. Non-price determinant of supply • Costs of production (anything that causes a change in production costs will change supply) ____costs ____S ____costs ____S _____________ relationship • Change in resource prices (L,L,C,E) _____P (resource) _____S (good) _____P (resource) _____S (good) _____________ relationship

16. Non-price determinant of supply • New technology (new tech results in greater efficiency – lower costs) ____tech ____S ____tech ____S _____________ relationship • Government policies • Sales taxes: taxes on the sale or manufacture of goods and services • Excise taxes: taxes on the sale or manufacture of a specific good (cigarettes, gasoline) • Subsidies- government grants of money to industry to help them lower the cost of production • Regulations: rules, policies that restrict business actions

17. Non-price determinant of supply • Sales and Excise Tax ____tax ____S ____tax ____S ___________ relationship • Subsidies ____sub ____S ____sub ____S ___________ relationship • Regulations ____reg ____S ____reg ____S ___________ relationship