Assignment: Review demand and

discuss supply (chapter 3 continued)

Homework: Practice #2 due tomorrow
Supply
o Schedule or curve showing amounts of a
product that producers are willing and
able to make available for sale at each of a
series of possible prices during a specified
period.

o Law of supply: As P increase, S increases,
as P decreases, S decreases. (direct or
positive relationship)

Supply
o Remember to switch your mind set to
producers/firms, not consumers anymore.
o To a supplier price = revenue (incentive to
sell product)
A Supply Funny
$1
2
3
4
5
P Q
S

CORN
Various Amounts
5
20
35
50
60
SUPPLY SCHEDULE
SUPPLY SCHEDULE
$1
2
3
4
5
P Q
S

CORN
Various Amounts
A Series of Possible Prices
a specified time period
other things being equal
5
20
35
50
60
5
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
Plot the Points
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
Plot the Points
35
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
Plot the Points
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
Plot the Points
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
Plot the Points
S
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
Plot the Points
Connect the Points
S
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
What if
Supply
Increases?
GRAPHING SUPPLY
S
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
Price of Corn
Quantity of Corn
$5
4
3
2
1
60
50
35
20
5
P Q
S

CORN
80
70
60
45
30
S Increase
in
Supply
Increase
in Quantity
Supplied
GRAPHING SUPPLY
S
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
What if
Supply
Decreases?
GRAPHING SUPPLY
S
P
Q
o
$5


4


3


2


1
10 20 30 40 50 60 70 80
$5
4
3
2
1
60
50
35
20
5
P Q
S

Price of Corn
Quantity of Corn
CORN
What if
Supply
Decreases?
GRAPHING SUPPLY
Supply Curve
Change in supply vs. change in quantity
supplied?
Change in supply = shift of entire curve
Change in quantity supplied = shifting
from one point to another point on a fixed
line.

Determinants of Supply
ROTTEN
Factors besides price that cause the supply
curve to shift.
Resource prices
Other goods (prices of)
Technology
Taxes & subsidies
Expectations
Numbers



Resource prices/availability:
If prices of resources used in production
increase, supply decrease and vice versa.




If availability of resources increase, supply
will increase.
Price of other goods:
Leather company produces wallets, belts,
and shoes. Price of shoes increase, so
factory produces more shoes, and less
wallets and belts.
Technology:
Improvements allow firms to make more
with less resources, which lowers the cost
of supply. (Therefore increasing it)

Taxes & Subsidies:
Tax: firms see this as a cost
(excise tax on cigarettes, fees on license to
produce). Therefore decreases supply.
Taxes & subsidies:
Subsidies: Government pays suppliers to
encourage or protect certain economic
activity.
(decrease $ to Universities decreases higher
education)

Expectations (of future prices):
If expect price to rise, produce more. If
expect price to drop, produce less.


Number of sellers:
More sellers = more supply
Less sellers = less supply.