CHAPTER 4

Supply
SECTION 1: Nature of Supply
SECTION 2: Changes in Supply
SECTION 3: Making Production Decisions

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 SECTION 1
Nature of Supply

Objectives:
 What is the difference between supply and
quantity supplied?
 What does the law of supply state?
 What do supply schedules and supply curves
illustrate?
 What is supply elasticity?

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 SECTION 1
Nature of Supply
Difference between supply and
quantity supplied:
 supply—quantity of goods and services that
producers are willing and able to offer at
various prices during a given time period
 quantity supplied—the amount of a good
or service that producers are willing to
supply at each particular price

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 SECTION 1
Nature of Supply

Law of supply:
 More goods and services are supplied when
they can be sold at higher prices, and fewer
goods and services are supplied when they
must be sold at lower prices.

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 SECTION 1
Nature of Supply
What supply schedules and supply
curves illustrate:
 Supply schedule—the quantity of a product
that a producer is willing to supply at
various prices
 Supply curve
 graphs the data shown in supply schedules
 indicates a product’s market over a specific
period of time
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 SECTION 1
Nature of Supply
Supply elasticity indicates the extent
to which price changes affect the
quantity supplied.

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 SECTION 2
Changes in Supply

Objectives:
 What does it mean for a product’s supply to
shift?
 What determinants might cause a product’s
supply curve to shift?
 How does a tax differ from a subsidy?

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 SECTION 2
Changes in Supply
When a product’s supply shifts,
different quantities of products are
supplied at every possible price.

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 SECTION 2
Changes in Supply
Determinants of product supply
shifts:
 resource prices
 government tools
 technology
 competition
 prices of related goods
 producer expectations
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 SECTION 2
Changes in Supply
Difference between a tax and a
subsidy:
 tax—required payment to the government
 subsidy—payment to private businesses by
the government

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 SECTION 3
Making Production Decisions

Objectives:
 Why do producers look at productivity when
making supply decisions?
 How do varying levels of input affect the
levels of output?
 How do changes in production costs affect
producers’ supply decisions?

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 SECTION 3
Making Production Decisions

Why producers look at productivity

when making supply decisions:
 to determine how efficiently their resources
are being used in production
 to maximize efficiency
 to increase profits

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 SECTION 3
Making Production Decisions

How varying levels of input affects

the levels of output:
 Adding levels of input increases productivity
up to a point and then eventually results in
decreased productivity and in negative
marginal product.

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 SECTION 3
Making Production Decisions

How changes in production costs

affect producers’ supply decisions:
 by determining the prices at which
producers supply quantities of goods or
services
 by determining production goals

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 CHAPTER 4
Wrap-Up
1. Define the law of supply. Be sure to include how
the profit motive relates to this law.
2. What causes movement along a supply curve—in
other words, what prompts a change in the quantity
supplied? How does this movement differ from a
shift in supply?
3. What determinants can cause a shift in supply?
Give examples of at least three of these factors at
work for a company that manufactures televisions.

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 CHAPTER 4
Wrap-Up
4. In how many ways does new technology affect the
supply curve? Give at least one example for each
way you come up with.
5. Explain what happens in the three stages of
production described by the law of diminishing
returns.
6. Explain the difference among the following types
of costs: fixed, variable, total, marginal.

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