Chapter 4 Supply
- 1. Chapter 4: Supply
- 2. Supply Economically Speaking: Qty of a good or service one is willing and able to provide at various prices If you are unwilling and/or unable to sell, you can’t supply Law of Supply: Firms will sell more at a higher cost, and less at a lower cost Price Effect: How Law of Demand affects sellers - they’ll sell more at a higher price than at a lower price (Prices = incentives, disincentives)
- 3. How to Graph Supply: Market Supply: All possible P,Q combinations! Aggregate Supply : Total of all goods,services of all firms Supply (S) Quantity (Q) Price (P)
- 4. Major Consideration of Supply Marginal Costs: Cost of producing add’l goods and services production = cost of production labor costs wear on machinery difficulty in extracting resources (scarcity) Production will continue until marginal costs = marginal benefits
- 5. Price Elasticity of Supply Elastic (Luxury item): Price changes greatly affect the # of products supplied # of items to sell when price Inelastic (Necessity): Price changes have little or no effect on # of products supplied Gas is inelastic, since a price means producers can make $ w/ same sales (my gas tank didn’t get any smaller) :(
- 6. Price Effect vs Change in Supply Market Supply is the combination of all P and Q supplied Various points along supply curve = Price Effect A Change in Supply occurs when: Firms supply Q at all P Firms supply Q at all P
- 7. A Supply Curve Shift S 1 = Original Supply S 2 = Increase in Supply S 3 = Decrease in Supply P Q S 1 S 2 S 3
- 8. What Causes A Supply Shift? Change in Marginal Cost Change in the # of Sellers Change in Expectations
- 9. Shifting Supply Curves 1) When Marginal cost in supply if # of producers supply price of cheese supply now and in future