CHAPTER 5: SECTION 1
Understanding Supply
What is supply?
Supply refers to the willingness and ability of
sellers to produce and offer to sell a good.
What does the Law of Supply
say?
The law of supply states that as the price of a good
increases, the quantity supplied of the good
increases, and as the price of a good decreases,
the quantity supplied of the good decreases.
Price and quantity supplied move in the same
direction, or have a(n) direct relationship. As one
factor rises, the other rises, too.
Quantity supplied is the number of units of a good
produced and offered for sale at a specific price.
Supply in Tables and Graphs
Supply curve
Supply schedule
A supply schedule is a numerical chart showing the law of
supply.
A supply curve is a graphical representation of the law of supply.
A Vertical Supply Curve
The law of supply does not hold
Supply curve when there is
for goods that can no longer be no time to produce more
produced. They supply curve for
this type of good is vertical.
Examples = Stradivarius violins
(produced more than 250 years
ago), and theater tickets
The law of supply does not hold
when there is no time to produce
more of a good. The supply
curve for this type of good is
vertical.
A Firm’s Supply Curve and a
Market Supply Curve
A firm’s supply curve is a supply curve for that
particular firm. A market supply curve is the sum
of all firms’ supply curves.
Parts (a), (b), and (c) show the supply curves for firms A, B, and C,
respectively.
The market supply curve, shown in (d), is the sum of the firms’ supply curves.
On your own…
Review questions
Applying the Principles
#76-90
When Supply Changes, the
Curve Shifts
 Supply
can go up or
down. These
changes in supply
will create a shift in
the supply curve.
A
rightward shift
means that supply has
increased.
A
leftward shift means
that supply has
decreased.
What Factors Cause Supply
Curves to Shift?
 Resource
Prices
A
decrease in a resource price increases supply. The supply
curve shifts to the right.
 An
increase in a resource price decreases supply. The supply
curve shifts to the left.
 Technology
 Technology
is the body of skills and knowledge concerning
the use of resources in production.
 The
ability to produce more output with a fixed amount of
resources in an advancement in technology.
 Per-unit
cost is the average cost of producing the good.


Taxes

An increase in taxes decreases supply. The supply curve shifts to the
left.

If a tax is eliminated (repealed), the supply curve will shift back to the
right.
Subsidies

Financial payments made by government for certain actions. (add
this to your notes in the margin)

An increase in subsidies increases supply. The supply curve shifts to
the right.

If a subsidy is removed, the supply curve will shift back to the left.
Quotas
• A legal limit on the number of units of a foreign-produced
good (or import) that can enters a country is a quota.
• A quota decreases supply. The supply curve shifts to the left.
• If a quota is eliminated, the supply curve will shift back to the
right.
Number of Sellers
• An increase in the number of sellers increases supply, and the
supply curve shifts to the right.
• A decrease in the number of sellers decreases supply, and
the supply curve shifts to the left.
 Future
Price
 It
is difficult for producers to keep their goods out of the
market and wait for prices to rise if the goods are perishable
(eggs, fruits, vegetables, etc.) because they will go bad, or
spoil, before the price increase.
 Weather
weather may decrease the supply of some agricultural
products. Usually good weather can increase supply.
 Bad
 Bad
weather, such as hurricanes, can also affect the supply
of non-agricultural products.
What Factor Causes a Change
in Quantity Supplied?
The only factor that can cause a change in the
quantity supplied of a good is a change in the price
of the good.
A change in quantity supplied is shown as a
movement along a give supply curve.
Elasticity of Supply
 Elasticity
of supply is the relationship between the
percentage change in quantity supplied and the
percentage change in price.
 Elastic
supply exists when the percentage change in
quantity supplied (the numerator) is greater than the
percentage change in price (the denominator).
 Inelastic
supply exists when the percentage change in
quantity supplied is less than the percentage change in
price.
 Unit-elastic
supply exists when the percentage change in
quantity supplied is the same as the percentage change in
price.
Elasticity of supply =
Percentage change in quantity supplied
Percentage change in price
On your own…

Review Questions

Applying the Principles #91-121

We will be going in the computer lab the
2nd half of class to work on Budget
Challenge.