Nature of Supply

1
Nature of Supply

• Supplyis the quantity of goods and services that
  producers are willing to offer at various prices
  during a given time period.
• The Quantity Suppliedis the amount of a good or
  service that a producer is willing to sell at
  each particular price.

2
The Law of Supply

• Law of SupplyStates that producers supply more
  goods when they can sell them at higher prices
  and fewer goods when they must sell them at lower
  prices.
• Why?

3
Profit

• ProfitThe amount of money remaining after
  producers have paid for all their costs.
• Costs of ProductionInclude wages, rent, interest
  on loans, utility costs, raw materials, used to
  manufacture a product.

4
Profits and Markets

• Profit motive helps direct the use of resources
  in the entire market.
• Ex. Sell bicycles for 150 and company increases
  production(supply).
• Encourages competition to increase its supply of
  150 bikes.
• Encourages new companies to start up.
• All are pursuing profits!

5
Supply Schedules and Curves

• Supply ScheduleTool that shows the relationship
  between the price of a good and the quantity
  producers will supply.
• Supply Curve--Plots on a graph the relationship
  between the price of a good supplied and the
  quantity producers will supply.
• Note Supply curve always slopes upward.
• Note Demand curve always slopes downward.

6
Elasticity of Supply

• Elasticity of Supplyis the degree to which price
  changes affect the quantity supplied.
• Elastic SupplyExists when a small change in
  price causes a major change in the quantity
  supplied.

7
Elastic Supply

• Products with elastic supply can be
• Made quickly
• Inexpensively
• Use a few readily available resources
• Sports teams appareltee shirts,hats
• Ex. Super Bowl championship
• Demand soars, prices rise, supply increases.

8
Inelastic Supply

• Inelastic supplyexists when a change in a goods
  price has little impact on the quantity supplied.
• Inelastic supply if production requires
• Time
• Money
• Resources not readily available
• Ex. Gold, fine art, space shuttles, etc.

9
Inelastic Supply

• Perfect inelastic supply exists when producers,
  regardless of price, cannot increase the quantity
  supplied.
• Ex. Ocean front lots
• 10 lots to sellregardless of price
• Can charge more but cannot produce more ocean
  front lots.