Chapter 5: Supply

1
Chapter 5 Supply
2
State Standards

• E.2.1 Define supply and demand.
• E.2.2 Identify factors that cause changes in
  market supply and demand.
• E.2.4 Describe how prices send signals to buyers
  and sellers.
• E.2.7 Demonstrate how supply and demand determine
  equilibrium price and quantity in the product,
  resource, and financial markets.
• E.2.8 Demonstrate how changes in supply and
  demand influence equilibrium price and quantity
  in the product, resource, and financial markets.
• E.2.11 Use concepts of price elasticity of demand
  and supply to explain and predict changes in
  quantity as price changes

3
What We Know so Far

• What Demand is
• The Factors that Affect Demand
• Elasticity of Demand
• Shifts in the Demand Curve

4
What We Will Learn

• What Supply is
• Factors that Affect Supply
• Supply Elasticity
• Affects of prices on the Demand Supply Curves

5
What is Supply?

• Supply is the quantities of output that producers
  will bring to market at each and every price.
  Supply can be represented in a supply schedule,
  or graphically as a supply curve.
• The Law of Supply states that the quantities of
  an economic product offered for sale vary
  directly with its price. If prices are high,
  suppliers will offer more than if prices are less.

6
What is Supply? (cont.)

• A change in quantity supplied is represented by a
  movement along the supply curve.
• A change in supply is the change in the quantity
  that will be supplied at each and every price.
  An increase in supply is represented graphically
  as a shift on the supply curve to the right. A
  decrease is a shift to the left.

7
What is Supply? (cont.)

• Changes in supply can be caused by a change in
  the cost of inputs, productivity, new technology,
  taxes, subsidies, expectations, govt
  regulations, and number of sellers.
• Supply elasticity describes how a change in
  quantity supplied responds to a change in price.
  If supply is elastic, a change in price will
  cause a more than proportional change in quantity
  supplied. If supply is inelastic, a less than
  proportional change in supply.

8
More Price Elasticity

• Elasticity.html
• Concept of Supply Elasticity in action.

9
The Price System at Work

• Prices serve as signals to both producers and
  consumers. They help to decide the WHO, HOW, and
  FOR WHOM.
• High prices are signals for businesses to produce
  more and consumers to buy less. Low prices are
  signals for businesses to produce less and
  consumers buy more.

10
The Price System at Work (cont.)

• Models of economic markets are often represented
  with supply and demand curves in order to examine
  to concept of market equilibrium, a situation
  where prices are stable and quantity supplied
  equals quantity demanded.

11
The Price System at Work cont.)

• In a competitive market, prices are established
  by the forces of supply and demand. If the price
  is too high, a temporary surplus appears until
  the price goes down. If the price is too low, a
  temporary shortage appears until the price rises.
  Eventually, the market reaches the equilibrium
  price where there is not a surplus or shortage.

12
The Price System at Work cont.)

• A change in price can be caused by a change in
  supply or a change in demand. The size of the
  price change is affected by the elasticity of
  both curves. The more elastic the curves, the
  smaller the price change the less elastic the
  curves, the larger the price change.

13
Explorations in Economic Supply

• supply.htm
• Questions
• 1. Interpret the supply graph in Part II.
• 2. Compare contrast the shifts in the supply
  curve in Part III.
• 3. Support the fact that one of the determinants
  for the position of the supply curve is the
  technology of production.

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Supply Demand Graphs

• supply/demand.html
• Use the Supply Demand graph to answer the
  following questions
• 4. Compare contrast what happens with the
  supply curve when you change the factor prices.
• 5. Compare contrast what happens with the
  demand curve when you change the income.
• 6. Interpret the effects of a shift in the supply
  curve.

15
Sources

• The Economics Net-Textbook by Ted Black 3rd
  Edition, 2002 http//nova.umuc.edu/black/pageg.h
  tml
• Explorations in Economic Supply University of
  Nebraska at Omaha, College of Business
  Administration, Department of Economics
  http//ecedweb.unomaha.edu/Dem_Sup/supply.htm
• Cyber-Economics by Robert Schenk Saint Josephs
  College, Dept. of Economics Inelastic Demand
• Economics-Principles Practices Glencoe 2003
• Economics-Principles, Problems, and Policies by
  Campbell McConnell McGraw-Hill College 2001