supply

supplyamount of goods and

services business firms are willing and able to

provide at different prices

Law of Supplythe higher the price, the greater the quantity of the

product a supplier will produce

businessa seller of goods or

services

supply schedule

table of supply data

supply curve

line-graph of supply schedule information

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Supply Curve

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31 2 4

$5,000

$10,000$15,000

$20,000

$25,000$30,000

Vertical graph

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$100

$200$300

$400

$500$600

Horizontal graph

50 60

change in quantity suppliedwhen a change in price

buyers will pay causes a change in the

number of goods supplied

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Change in Quantity Supplied

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Change in Supply• decrease in supply

leftward shiftsuppliers produce less at

any given price

Change in Supply• increase in supply

rightward shiftsuppliers produce more

at any given price

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Increase in Supply

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Supply Shift Factors• change in technology• change in production costs• change in price of related

goods

Change in Technology• improves tools used to

produce goods and services• improves production or

reduces cost

Change in Production Costs

• costs of natural resources, labor, and financial capital

• changes in these costs affect supply

Change in Price of Related Goods

• usually substitute goods• shift production to the more-

profitable good

Market Equilibrium Point

price at which consumers

are willing to pull out of the market the exact quantity of product that suppliers are willing to

push in

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demand

supply

market equilibrium

Economies of Scale• the more produced, the

cheaper each product• supply more with hopes

that demand increases

surplusan excess of unsold

products

Surplus Costs• storage• security & insurance of the

goods• spoilage of the goods• loss of income• interest costs of financing

Surplus Solutions

1) increase demand for the goods

2) decrease the supply3) allow the price to fall to the

equilibrium point

Surplus Solutions

1) increase demand for the goods• first and best solution

for the supplier• produce a great quantity

and charge a higher price• “demand solution”

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demand1

demand2

supply

Surplus Solutions

1) increase demand for the goods• increasing tastes &

preferences• eliminate substitute goods• establish price floors

Surplus Solutions

2) decrease the supply• cut production• “supply solution”

problems = competition reaction

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demand

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Surplus Solutionsincrease demand

decrease supply

•demand solution

•supply solution

•shifts the demand curve

•shifts the supply curve

• favored by suppliers

Surplus Solutions3) allow the price to fall to the

market equilibrium point• the market does the work• supplier = gradually lowers price• buyer = purchases more at lower price

• surplus gone; price stops falling

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Surplus Solutions1) increase demand for the

goods2) decrease the supply3) allow the price to fall to the

equilibrium point

shortage• caused by the price of a good

being held lower than its market equilibrium price

• not enough of a good

loss leadersproducts deliberately sold at a loss to lure

in customers

Price Ceilings• government restrictions on

prices• prevent prices from rising

to equilibrium value• always causes shortages

Shortage Solutions1) decrease demand2) increase supply3) allow the price to rise to the

market equilibrium point

Shortage Solutions1) decrease demand

• “demand solution”• by discouraging demand

for a product

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supply

demand1

demand2

Shortage Solutions2) increase supply

• “supply solution”• by:

managing supplyimproving technologyboosting productivity

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supply1

demand

supply2

Shortage Solutionsdecrease demand• demand solution

increase supply• supply solution

• shifts demand curve

• shifts supply curve

• dangerous to suppliers

• focus on technology or production

Shortage Solutions3) allow the price to rise to the

market equilibrium point• not imposing price ceilings• benefits:

encourages conservation and discourages wastefulness

motivates entrepreneurs to enter the market

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supplydemand