Chapter 5 - Supply
•Supply – the amount of a product that would
be offered for sale at all possible prices in the
market.
•Law of Supply – suppliers will normally offer
more for sale at higher prices and less at
lower prices. Suppliers are motivated by
profit.
Chapter 5 - Supply
•Supply Schedule – lists the quantities of a
product supplied at all possible prices. Price
and Quantity move in the same direction.
Individual Supply Curve – illustrates how the
quantity that A producer will make varies
depending on the price.
Market Supply Curve – illustrates the
quantities and prices that ALL producers will
offer in the market for a product or service.
A supply curve moves upward and shows
that if one value goes up so will the other.
Changes in Quantity Supplied
•This is the change in the amount offered for
sale due to a change in price. This is
illustrated by movement ALONG the supply
curve either as an increase or a decrease.
•Producers have freedom –
Price falls too low = slow or stop production
or leave market
Price rises = Step up production
•Producers are always looking to take
advantage of better prices.
Changes in Supply
•This is when suppliers offer different
amounts of products for sale at all possible
prices.
•This is illustrated by a NEW curve –
Curve shifts to the Right = Increase
Curve shifts to the Left = Decrease
Factors that Effect Changes in Supply
1. Cost of Inputs (labor, parts, shipping, etc.)
a. Costs Up = Production Down
b. Costs Down = Production Up
2. Productivity (Hawthorne Effect)
3. Technology
4. Taxes – The more companies pay in taxes
the more it costs to produce an item.
Therefore = ?
Factors that Effect Changes in Supply
5. Subsidies – money that is given to
businesses that helps lower the cost of
production. Therefore = ?
6. Expectations –
a. Prices expected to rise = Suppliers hold
back
b. Prices expected to fall = Suppliers
increase production
Factors that Effect Changes in Supply
7. Government Regulations – Foreign
Countries
8. Number of Sellers
Elasticity of Supply
• Measures how sensitive quantity supplied is
when there is a change in price:
 Small increase in price leads to large increase
in output = Elastic
 If supply changes very little to a change in
price = Inelastic
 When firms adjust quickly to a new price =
Elastic
 If adjustment take a long time = Inelastic
Elasticity of Supply
**If a firm can react quickly to higher or
lower prices Supply is Elastic**
**If the firm takes longer to react to a
change in prices Supply is Inelastic**