A.S 1.3 - Describe the concept of supply. Supply The amount of good or service that a firm is willing to produce at various prices at a certain time The.

A.S 1.3 - Describe the concept of supply

Supply

The amount of good or service that a firm is willing to produce at various prices at a certain time

The main factor that affects supply is price

Price or cost?

What do you think the difference is between price and cost?

Price= the amount of money producers receive when they sell a good or provide a service.

Cost= the amount paid by the producer or seller in order to have the product ready for the market.

Types of Costs for a firm

Accounting cost- Payment required in dollar terms (Rent, power, materials, advertising wages etc

Opportunity cost- Sacrifice of the next best alternative when making a decision.

Economic costs= Accounting costs + Opportunity costs

The Importance of price

If you were a producer what would you do if there was a

High Price for your product?

Low Price for your product?

THE LAW OF SUPPLY

As the price of commodities increases, the quantity supplied increases, ceteris paribus

As the price of a commodity decreases, the quantity supplied decreases, ceteris paribus

Supply Schedule

A supply schedule is a table that shows the quantity of a good or service an individual firm is willing to supply at a series of prices

Mere’s Supply Schedule for chocolate Easter Eggs (weekly) Price ($) Quantity

(Easter Eggs)

1.00 200

1.50 250

2.00 300

2.50 400

3.00 500

Supply Schedule

NotesNeeds a title showing WHO? WHAT? WHEN?Price is always in the left-hand column and is

specified as dollars or cents and should be listed from lowest to highest

The right hand column is always quantity and should be specified in its units (litres tonnes easter eggs)

Supply Curve

A supply schedule is the graph drawn from the information in the supply schedule

Mere’s Supply Schedule for chocolate Easter Eggs (weelky)

Price ($) Quantity (Easter Eggs)

1.00 200

1.50 250

2.00 300

2.50 400

3.00 500

Supply Curve

NotesThe graph needs a title showing WHO? WHAT?

WHEN?Price is always drawn on the vertical axisQuantity is always drawn on the horizontal axisBoth axis’s and the curve must be labelledKeep your scale even.Do not take your line beyond the points you

have plotted

Now try Yourself

From the information provided on the schedule construct a supply curve. (Remember TALL)

Freds Supply Schedule for Stereos

Price Quantity

250 10

350 23

450 35

550 48

Answer

Freds Supply Schedule for Stereos (monthly)

Price ($) Quantity (Stereos)

250 10

350 23

450 35

550 48

Recap on Profit

Most producers supply goods in order to make a profit

What is profit?

The reward earned by the owner of a business once costs have been taken into account.

Profit = Revenue - Cost

So what are costs of production?

The amount paid by the producer to get the product ready to sell

How much income the firm earns, usually from selling its product or service

Revenue=Price x Quantity

And then what is Revenue?

Breakeven Price

The price that businesses

must at least receive for their

product so as they don’t incur a loss. Any price obtained above breakeven price is profit to the firm.

Breakeven Price= Cost of production

Level of output

Market Supply

Market supply= total supply that all individual firms in the market are willing to produce at a range of prices at a particular point in time. (How much the whole market is willing to produce)

Market supply is found by adding up horizontally all the individual producers supply curves and/or schedules

Market Supply example

Supply Schedule for Tissues in Sniffsville

Price $ per box

Store A Quantity (boxes)

Store B Quantity (boxes)

Store C Quantity (boxes)

Market Supply Quantity (boxes)

1.00 15 30 7

3.00 30 37 15

5.00 38 38 22

7.00 45 40 30

52

8298

115

A Change in Price

Under the law of supply, as the price of commodities increases, the quantity supplied increases, ceteris paribus

The price change is the cause the change in quantity supplied is the result.

A Change in Price

Why do you think as prices fall producers will supply less?

Producers supply less as the price for a product decreases because they will choose to use their resources in another way – produce another related product that has a higher price.

If a product can be sold at a higher price there is more of a likelihood of earning more profit.

For example a sheep farmer moves towards beef farming as the price of sheep decreases but the price of beef is higher

A Change in Price

There is a positive relationship between price and supply – this is why the supply curve is upwards sloping

As shown by the graph an increase in price will result in an increase in the quantity supplied (it’s a movement along the curve)

From the schedules below construct a market supply schedule and curve

Supply Schedule of lollies for Broughton street DairyPrice Quantity

1 1

2 2

3 3

4 4

Supply Schedule of lollies for Sharps DairyPrice Quantity

1 1

2 1

3 2

4 4

Supply Schedule of lollies for Coonies Dairy Price Quantity

1 2

2 3

3 4

4 6