* The Supply of
Economic Goods
* What is the law of supply?
* What is the supply curve?
* What are the determinants of supply?
* Elasticity of Supply
* What will I learn
today?
* The main goal of companies is to maximize profit.
* Profit comes from the difference between revenues and
cost of production.
* Revenues depend on the price of the product and the
amount of sales (Price x Quantity sold).
* Cost of production is the money companies spend to
produce goods and services. Production costs may
include things such as labor cost (salaries), raw
materials, equipment and supplies.
* Cost per unit: the cost to produce one item of the good.
* So, companies have to make profit on every unit sold, so
the cost per unit needs to be lower than the price of
the product.
* Profit, revenues,
cost of production
* Big companies can produce products cheaply, with a low cost per unit
because they have better equipment, workers and buy raw materials
in big quantities so they buy them cheaper than small companies.
* When the price of a product is low only big size companies can make
profit for every unit they produce. Only they will exist in the market
and the total supplied quantity will be low.
* As the price increases smaller companies with higher production costs
can enter the market and supply the product, so the total supplied
quantity increases.
* So there is a positive relation between the price of a product and the
supplied quantity.
* As the price increases, producers are willing to produce and supply a
higher quantity and vice versa.
* Supply shows the supplied quantity at every price level (like demand
showed demanded quantity at every price level).
* The Law of Supply
* Supply Curve
Complete the sentences
1. When the price is low only ……….companies exist in the
market.
2. When the price is …… the supplied quantity is high.
3. ……………..companies produce with a high cost …….. ……….so
only when the price is high they can ………….the market.
4. Companies need to make ………………on every unit of product
sold, so the ……………has to be higher than the cost per unit.
5. The law of supply is the ……………….relation between price
and ……………… ………………..
6. The cost of production includes ……………….., ……………….,
………………and ……………………….
7. Usually, the most expensive resource for a company is
…………….
8. The law of supply applies …………………………..
* exercise 1
The most common determinants of supply
are:
*Price of Factors of Production,
* Technology,
* Number of producers,
* Weather conditions (for agricultural
products).
* Determinants of Supply
1. Change in the price of factors of production: For
example as salaries decrease, production cost
decreases and producers are willing and able to
increase their supplied quantity for every price
level. This will shift the supply curve to the right.
2. When technology improves, producers can
produce more using the same factors of
production. This shifts the supply curve to the
right.
3. As more producers enter the market the quantity
supplied is higher at every price level, so the
supply curve moves to the right.
4. Good climate conditions increase the supplied
quantity for every price level and this shifts the
supply curve to the right.
* Shifts in Supply
* Like the elasticity of demand, Elasticity of
Supply shows the reaction of producers to
price changes.
* When a small change in price leads to a
big change in supply, the supply is elastic.
* When a small change in price leads to a
small change in supply, the supply is
inelastic.
* Elasticity of Supply
* All producers prefer to be flexible and elastic, so
that they respond well to price changes. For example
when something pushes the price up producers want
to be able to increase the supplied quantity a lot to
maximize their profit.
* Producers are more responsive when they can
increase production or supply with only a small
change in production cost. This is possible when:
They have raw material, workers and money
available at any time
Products can be easily stored and/or there is
existing stock
Production is as simple as possible.
More flexible and responsive companies are more
competitive because they can respond to market
changes effectively.
Elastic supply:
* The textile industry is elastic because raw
material is cheap, labour is unskilled and can
easily be moved from one department to
another to increase production.
Inelastic supply:
* The supply of automobiles is inelastic, because
the production process is more complicated,
labour is skilled and it is not very easy and quick
to get the parts needed to increase production.
* Housing. If somehow the price of houses
increases, it is not easy for the sellers to
increase supply in the short run, if not many
houses are not available.
* https://
www.youtube.com/watch?v=nKvrbOq1OfI&t=9s
* https://
www.youtube.com/watch?v=5iyCwbvJc_U
* https://
www.youtube.com/watch?v=gguIcyQzSog
*
* Relevant Videos
* Supply: προσφορά
* Law of supply: νόμος της προσφοράς
* Supplied quantity: προσφερόμενη ποσότητα
* Supply curve: καμπύλη προσφοράς
* Raw materials: πρώτες ύλες
* Vice versa: το αντίστροφο
* Willing: πρόθυμος
* Glossary
