Supply- Amount of a good or service that a
producer is willing to sell at each particular price
-Law of Supply- the higher the price, the
larger the quantity produced
P = QS
Supply Schedule- lists how much of a good a supplier will
offer at different prices
Market Supply Schedule- lists how much of a good ALL
suppliers will offer at different prices
Supply Schedule
Price of Smoothie
Smoothies supplied per day
$1
10
$2
20
$3
30
$4
40
Supply Curve
$4
Price
$3
$2
$1
0
10
20
30
Quantity Supplied/Output
40
Market Supply Schedule
Price of Smoothie
Smoothies supplied per day
$1
1000
$2
2000
$3
3000
$4
4000
Market Supply Curve
Price
$4
$3
$2
$1
1,000
2,000
3,000
4,000
Quantity Supplied/Output
What causes producers to vary their supply of goods &
services
PROFIT - producers actions are based on the pursuit of
profit
- Amount of money remaining after producers have paid
all of their costs
- Make a profit when incoming revenues are greater than
costs of production
Production Costs
*Operating Cost- cost of operating a facility (factory or store)
1. Fixed Cost- cost that doesn't change
Examples: rent, interest on loans, property insurance
premiums, local and state property taxes, and salaries
Overhead - Total Fixed Costs
2. Variable Cost- cost that rises or falls depending on
how much is produced
- Examples: raw materials, wages, etc
3. Total Cost = fixed cost + variable cost
4. Marginal Cost- cost of producing one more unit of a
good
Prices for sports team memorabilia may increase during a successful season. How does this
increase reflect the law of supply?
Supply Shifts
REMEMBER A CHANGE IN PRICE IS ALWAYS A
MOVEMENT ALONG THE CURVE
Determinants of Supply
1. Price of Resources
2. Government Tools
3. Technology
4. Competition
5. Price of Related Goods
6. Producer Expectations
Price of Resources
Resource: anything that is used in the production of a
good or service
- ex: wages, electricity, raw materials
Government Tools
Tax: required payment of money to the government to help fund
government services
- Businesses pay taxes on the materials, property and profit
- EX. Higher Taxes, businesses are faced with higher costs of
production & prospects of making less profit & will supply less
of their product, supply curve will shift to the ________
Government Tools
Subsidies: payments to private businesses by the government
ex. Wheat
Excise Tax: are taxes paid when purchases are made on a
specific good
ex. Gasoline, Tobacco
Technology
Can have a powerful impact on supply, such as a new tool or
chemical process
New technology makes the production more efficient and less
expensive
New automatic espresso machines have made
the process of producing drinks at Starbucks
more efficient and very fast.
Competition
Competition tends to increase supply
Lack of competition tends to decrease supply
Another example of Competition:
Recently a Cold Stone Creamery was put up next to a local ice cream
shop in Wadena.
Cold Stone Creamery
Local Ice Cream Shop
Price of Related Goods
Supply for one good often is connected to the supply
for its related goods
Change in a products price can affect the supply for
the product’s related goods
The price of cocoa has risen tremendously in the
past few weeks. What impact will this have on the
supply of mocha based drinks?
Producers Expectations
Supply will vary on the expectations of the producer
Good expectations = good supply, bad expectations =
low supply
Summer weather is coming soon. McDonalds is
aware of this & wants to change their McCafe menu.
What will McDonalds do to meet the needs of their
consumers?
Pizza Ranch decides to only carry Pizza because prices for
chicken has drastically risen.
Pizza
P
S
Q
Starbucks baristas no longer have to hand write drink specifications onto the
paper cups for the drink makers at the espresso machine. A new order-printingsticker system has been devised to make the assembly line of drink making a
much faster process.
Starbucks Products
P
S
Q
Recently, all Subway stores in the Twin Cities area have offered a deal of “buy 1 sub sandwich
and receive a coupon for ½ off your next sub sandwich.” What will happen to the Jimmy John's
down the street?
Jimmy John's
Subway
P
S
P
Q
S
Q
All food industries (including coffee and beverage stores) have been
subjected to new, very strict FDA policies on how food and beverages must
be delivered, stored, distributed and discarded of.
P
S
Q
Productivity
Their resources are being used in production
Look at productivity to maximize your profits
Total Product - All of a product a company makes in
given time period, with a given amount of input
Marginal Product - change in output generated by adding one
more unit of input
Labor & Output
Marginal Product of Labor- change in output from hiring one
additional unit of labor
1. Increasing Marginal Returns- level of production in which
the marginal product of labor increases as the number of worker
increases
2. Diminishing Marginal Returns- marginal product of labor
decreases as number of workers increases
Elastic Supply
Exist when a small change in price causes a major change in
the quantity supplied
Products with elastic supply can be made:
1. Quickly
2. Inexpensively
3. Using a few readily available resources
EX. Sports teams’ souvenirs: T-shirts, posters, hats
Inelastic Supply
Price change has little impact on quantity supplied
Products are inelastic if production requires a great deal of:
1. Time
2. Money
2. Not readily available resources
Ex. Gold, fine arts, space shuttles, lake lots (supply is usually
fixed)