SUPPLYSUPPLY

What is it?What is it?

The amount of goods or services for sale at The amount of goods or services for sale at a particular price.a particular price.

Breakdown: The lower the price the less Breakdown: The lower the price the less product…the higher the price the more product…the higher the price the more goods and services offered.goods and services offered.

The LAW of SupplyThe LAW of Supply

The quantity offered The quantity offered varies varies directlydirectly with the with the price offered.price offered.

1. Higher price allows for 1. Higher price allows for greater outputgreater output

2. Less efficient producers 2. Less efficient producers will join the game because the will join the game because the increased price will allow increased price will allow them to producethem to produce

The Law of Supply:The Law of Supply:

As Price , the quantity Supplied .

Da GraphsDa Graphs

There are Supply There are Supply Schedules too.Schedules too.

These Schedules can These Schedules can be graphed! Yahoo!be graphed! Yahoo!

The slope is upward The slope is upward and to the right!and to the right!

Supply schedule for Ice cream Supply schedule for Ice cream conescones

Price per conePrice per cone .50.50 .75.75 $1.00$1.00 $1.25$1.25 $1.50$1.50 $1.75$1.75 $2.00$2.00

Quant. SuppliedQuant. Supplied 5050 8080 125125 175175 235235 265265 300300

Elasticity of SupplyElasticity of Supply

Just like demand, supply is sensitive or Just like demand, supply is sensitive or insensitive to price changes.insensitive to price changes.

Elastic Elastic = Change in price causes larger = Change in price causes larger change in supplychange in supply

InelasticInelastic = Change in price causes smaller = Change in price causes smaller change in supply!change in supply!

Market Price!Market Price!

You can’t always get You can’t always get what you want.what you want.

The price at which The price at which goods or services may goods or services may actually be bought or actually be bought or sold is the MARKET sold is the MARKET PRICE (Equilibrium PRICE (Equilibrium price)price)

Remember: These situations take Remember: These situations take place in a PERFECT market place in a PERFECT market

economy:economy: 1. All buyers work independently and are 1. All buyers work independently and are

too small to influence markets alone.too small to influence markets alone. 2. Competing products are practically 2. Competing products are practically

identical.identical. 3. All buyers have full knowledge of all 3. All buyers have full knowledge of all

price quotes.price quotes. 4. Buyers and sellers can enter and leave the 4. Buyers and sellers can enter and leave the

market at will.market at will.

$2.50…That’s it?$2.50…That’s it? The equilibrium/market The equilibrium/market

price is the ONLY price.price is the ONLY price. Can’t afford it? You Can’t afford it? You

will leave the market.will leave the market. Won’t sell for that Won’t sell for that

cheap? You will leave cheap? You will leave the market.the market.

The market will drive The market will drive you to equilibrium price you to equilibrium price even if you are willing even if you are willing to act at another price.to act at another price.