Presentation Transcript

1. Supply

   the relationship between price and quantity
2. Supply the willingness and ability of producers to provide goods and services at different prices in the marketplace The Law of Supply states: At higher prices, a larger quantity will generally be supplied than at lower prices. At lower prices, a smaller quantity will generally be supplied than at higher prices. Ceteris paribus. Unlike demand, there is a direct relationship between price and quantity supplied. Further, there is a price at which a supplier cannot sell a product and stay in business.
3. Price effect Applies to supply as well, however, the relationship is that expressed under the Law of Supply. Remember, price effect is simply the law of supply at work. It is a “change in the quantity supplied.” You’re moving up and down the existing supply curve and not experiencing a “change in supply”, which is a shift in amount supplied at each and every price.
4. Price Effect
5. Change in Supply Absolutely not the same as “a change in the quantity supplied.” A Change in supply or a shift in supply represents a change in the amount supplied at each and every price at which the good or service is sold. There is a new supply curve. New technology New players in the market
6. Change in Supply A Change in supply or a shift in supply represents a change in the amount supplied at each and every price at which the good or service is sold. There is a new supply curve.
7. A Change in supply factors: Input costs Rising costs (of labor and raw materials) Technology (drops costs) Government’s influence Subsidy (increases supply) Taxes - Excise tax (reduces supply) Regulation/govt. intervention (raises cost and usually lowers supply) Supply in the global economy Future expectations of prices (seller may reserve if prices are low and expect to raise) Number of suppliers
8. PRICE ELASTICITY OF SUPPLY A measure of the way quantity supplied reacts to a change in price. In some goods and services, the rise and fall of price greatly affects the quantity supplied (amount producers are willing and able to produce). The supply for this type of product would be elastic. In other goods and services, the rise and fall of price does not greatly affect the quantity supplied (amount producers are willing and able to produce). The supply for this type of product would be inelastic. As represented on a graph, In general, a steep supply curve means inelasticity, a flat supply curve means elasticity
9. What factors determine whether the supply for a good or service is elastic or inelastic? Time (period of adjustment as it effects output level). Elasticity of supply is greater in the long run than in the short run. In the short run supply is fixed and the supply schedule is perfectly inelastic (with some variation, see oranges & haircuts).
10. FORMULA FOR DETERMING PRICE ELASTICITY OF SUPPLY The price elasticity of supply is defined as the percentage change in the quantity supplied divided by the percentage change in price. E = Percentage change in quantity supplied Percentage change in price Or E = Q1-Q2dividedP1–P2 Q1 X 100 byP1X100 E > 1 (elastic) E = 1 (unit elastic) E < 1 (inelastic) Remember -- Unit Elastic: Neither elastic or inelastic, a change in price does not affect the total revenues for the sale of the product.
11. ELASTICITY OF SUPPLY