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    Unit 2 2 Supply

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    Unit 2 2 Supply

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    unit 2 2 supply

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    1K views11 pages

    Unit 2 2 Supply

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    Supply

    Law of Supply & Non-Price Determinants


    Learning Outcomes
    Define Law of Supply
    Distinguish between movement along and
    shift of Supply curve
    Explain how the non-price determinants
    affect the Supply Curve
    Construct diagrams to illustrate the
    difference between a movement along and
    shift of the Supply curve
    Supply
    Supply:
    Quantity of a good or service that producers
    are willing and able to offer at a given price
    during a specific time period.
    Law of Supply
    There is a direct relationship between Price and
    Quantity Supplied for Producers.
    Price increases - Quantity Supplied Increases
    Price decreases - Quantity Supplied Decreases
    Supply Curve
    Profit Incentive: Ceteris Paribus, a firm would
    prefer to sell a good or service at a higher price
    rather than a lower price because that will increase
    profits.
    http://www2.yk.psu.edu/~dxl31/econ4/coffee_supply_curve.png
    Price Quantity Supplied
    1 6
    2 9
    3 12
    4 15
    5 18
    Shifts & Movements along the curve
    Movement alongchange in
    Price.
    Increase in Price .20 to .50 results
    in Increase in Quantity Supplied
    from 100 to 400 units.
    Shift of Supply Curve.Non-Price
    Determinants
    S1 - S2 : Increase in Supply. Price constant..
    S1 - S3 : Decrease in Supply. Price constant
    Non-Price Determinants of Supply
    Include:
    Cost of Factors of Production
    Producer Expectation
    Government Intervention
    Number of Firms
    Supply Shocks
    Cost of Factors of Production
    An increase in the Cost of Production for a
    firm will lead to a Decrease in Supply (left
    shift).
    A decrease in the Cost of Production for a
    firm will lead to an Increase in Supply
    (right shift).
    Inverse Relationship between Cost of
    Production & Supply
    http://cdn.romeconomics.com/wp-
    content/uploads/2012/10/factors_of_production.jpg?50ff81
    Producer (Firm)
    Expectation
    Producer expects the
    price of his good to rise,
    he may withhold it from
    the market with the hope
    to sell it in the future at a
    higher price.
    Decrease in Supply (left
    shift) now.
    Number of Firms
    Increase in the number
    of firms.
    Increase in Supply
    (right shift)
    The reasoning follow
    that market supply is
    the sum of all individual
    supply. Direct
    relationship.
    Taxes
    Taxes are treated as
    an Increase in the Cost
    of Production.
    Decrease Supply
    (left shift)
    Subsidy
    Subsidy: Payment by the
    government to the firm.
    Opposite of a tax in that it
    decreases the Cost of
    Production.
    Increase Supply (right shift)
    Supply Shocks
    Sudden unpredictable
    events such as:
    Natural disasters
    Weather conditions
    War
    Negative Supply Shocks
    Decrease Supply (left shift)

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