University:
Bradley University
Course:
ECO 221 | Principles of Microeconomics
Academic year:

2022
Views:

275

Pages:

12
Author:

Remington Spence

Economics Chapter 5: Supply Section 1: Understanding Supply The Law of Supply • According to the law of supply, suppliers will offer more of a good at a higher price. Price Supply As price increases… Quantity supplied increases Price Supply As price falls… Quantity supplied falls • Develops from the choice of both current & new producers of a good • As the price rises, firms will produce more in order to earn additional revenue • New firms have an incentive to enter the market • Individual firms changing their level of production & firms entering or exiting the market create law of supply How Does the Law of Supply Work? • Economists use the term quantity supplied to describe how much of a good is offered for sale at a specific price. • Promise of increased revenues when prices are high encourages firms to produce more. • Rising prices draw new firms into a market & add to the quantity supplied of a good. The Supply Schedule • Shows the relationship between price & quantity supplied for a specific good • Lists supply for a very specific set of conditions –All other factors remain constant A Change in the Quantity Supplied • Supply- relationship between price & quantity supplied • A rise or fall in the price will cause the quantity supplied to change, but not the supply schedule • A market supply schedule is a chart that lists how much of a good all suppliers will offer at different prices. Market Supply Schedule Price per slice of pizza $.50 Slices supplied per day 1,000 $1.00 1,500 $1.50 2,000 $2.00 2,500 $2.50 3,000 $3.00 3,500 Supply Curves Market Supply Curve 3.00 Supply 2.50 Price (in dollars) • A market supply curve is a graph of the quantity supplied of a good by all suppliers at different prices. 2.00 1.50 1.00 .50 0 0 500 1000 1500 2000 2500 3000 3500 Output (slices per day) • Always rises from left to right • Higher prices leads to higher output Elasticity of Supply Elasticity of supply is a measure of the way quantity supplied reacts to a change in price. • If supply is not very responsive to changes in price, it is considered inelastic. • An elastic supply is very sensitive to changes in price. What Affects Elasticity of Supply? Time • In the short run, a firm cannot easily change its output level, so supply is inelastic. • In the long run, firms are more flexible, so supply can become more elastic.

Chapter 5 Supply Economics Worksheet Answers

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