Supply Adapted from Capstone Economics Unit 2, Lesson 9

SupplyAdapted from Capstone Economics Unit 2, Lesson 9

Today’s Goals

• Students will understand what Supply is.• Students will understand what The Law of Supply is.• Students will understand what a Supply Shift is.

The set up

The owner of the local fast-food restaurant is havingtrouble hiring workers for the closing shift.

Although the closers have a few more responsibilities than other workers, including cleaning, the closing shift often fits best with students’ schedules.

The owner of the restaurant doesn’t know what to do. He is angry. He says that “Young people today are just plain lazy and maybe spoiled too.”

Is the owner right?

Are there other explanations of why young people might choose not to work as closers in the fast-food restaurant?

Possible Answers:Could hang out with friendsCould StudyMaybe there is a better job elsewhere

PRODUCERWhy do producers offer goods and services for sale?

Why do producers offer goods and services for sale?

Possible Answers:• Earn Money• Pride in work that others find valuable

What do producers do if the price of a good goes up?• Producers will supply more of that good in

order to capture more profit. This is the basic idea of the Law of Supply

Activity 1: How Many Hours Are You Willing To Work?

Tabulate the number of work hours you are willing to work per week.

Provide the information requested in Activity 1. (Just a few minutes)

I need four volunteers!

There will be some questions regarding this data!

Graphing SupplyUse the data we collected to plot a supply curve.

Your Graph should look something like this:As prices rise, what happens to the quantity of supply?Why?

What happens when the price goes down?Why?

Who determines the amount to supply? (the buyer or seller?)

Supply-side thinking Think like a producer (seller),

not like a consumer(buyer)

Profit motive!

Why do producers produce goods and services?

How much to produce? How much to charge?

Not too much, not too little

Too much = lost profit. Not enough = lost profit.

What will change the quantity supplied?or Why will producers start making more or less stuff to sell?

• Because they think they can make more money. This can be called their self-interest.

• Does it ever make sense to make less of a good to make more money?

• Yes… so you’re not over-producing. Also, you can shift production to something more profitable

Price effects• Producers can make more money if the market price goes up.

• More profit means producers make more to sell, and new producers enter the market to get some of the profits. Supply

Price they can get

- Costs (costs of production, input costs)

Profit $$$

Law of Supply• When price/profit goes up, supply goes up. Why?

• When price/profit goes down, supply goes down. Why?

What else affects supply?(besides price changes)

• More producers enter the market (why?)• Change in input costs (caused by what?)• Change in expectations of future profit• Discovery of a new source of inputs• Natural disaster, war disrupts inputs

How would supply shift for the following situations?• The supply of cars when a trade agreement allows more foreign

producers to sell cars in the United States An increase of supply (shift right)

• The supply of coffee when freezing temperatures hit the major coffee producing regions of Brazil and Costa Rica?

An decrease of supply (shift left)

• The supply of lumber when a new computer assisted saw reduces the cost of production

An increase of supply (new technology decreases production costs)

• The supply of A decrease of demand (shift left)

Quick Question

The law of supply states:

A. People’s behavior in the marketplace is unpredictable.

B. When the price of a good goes up, one can expect a greater supply of that good.

C. The graph of a supply curve is a downward sloping line.

D. People usually supply fewer goods and services when their prices rise.

Today’s Goals

• Students will understand what Supply is.• Students will understand what The Law of Supply is.• Students will understand what a Supply Shift is.

Supply

For supply, you must think like a producer or a seller, not like a consumer!How much a producer of a good/service is willing to produce/sell at a given price

How do they decide how much to charge for their good/service?