15 16 managerial economics 4 supply graphing supply

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Unformatted text preview: SUPPLY Law of supply. Producers will produce and sell more of their product at a high price than at a low price. There is a direct relationship between price and quantity supplied. Explanation: Given product costs, a higher price means greater profits and thus an incentive to increase th the quantity supplied. Beyond some production quantity producers usually encounter increasing costs per added unit of output. Price of Corn P The graph of a supply schedule appears in the following Figure It shows a direct relationship in an upward sloping curve. Economics Managerial SUPPLY $5 4 3 2 1 2 60 50 35 20 5 Connect the Points 10 20 30 40 50 60 70 80 ManagerialQuantity Economics of Corn Q 18 SUPPLY Six basic determinants of supply, other than price. Determinants of supply. A change in any of the supply determinants causes a change in supply and a shift in the supply curve. An increase in supply involves a rightward shift, and a decrease in supply involves a leftward shift. 19 Managerial Economics P QS 3 o 17 CORN 4 1 The supply curve. S $5 Resource prices—a rise in resource prices will cause a decrease in supply or leftward shift in supply curve; a decrease in resource prices will cause an increase in supply or rightward shift in the supply curve. Technology—a technological improvement means more efficient production and lower costs, so an increase in supply or rightward shift in the curve results. Taxes and subsidies—a business tax is treated as a cost, so and subsidies business tax is treated as cost so decreases supply; a subsidy lowers cost of production, so increases supply. Prices of related goods—if the price of substitute production good rises, producers might shift production toward the higherpriced good, causing a decrease in supply of the original good. Expectations—expectations about the future price of a product can cause producers to increase or decrease current supply. Number of sellers—generally, the larger the number of sellers the greater the supply. 20 Managerial Economics 5 GRAPHING SUPPLY GRAPHING SUPPLY Price of Corn Decrease Price of Corn P $5 4 Increase in Supply 3 2 1 S P S’ $5 CORN P QS $5 4 3 Increase 2 in Quantity 1 4 60 80 50 70 35 60 20 45 5 30 10 20 30 40 50 60 70 80 2 1 ManagerialQuantity Economics o Q 21 of Corn MARKET DEMAND & SUPPLY Price of Corn CORN MARKET P QD $5 2,000 4 4,000 3 7,000 2 11,000 1 16,000 P S $5 CORN MARKET Market S $5 12,000 Clearing 4 10,000 Equilibrium 3 3 7,000 2 4,000 1 1,000 2 1 o D 2 4 6 78 10 12 14 16 ManagerialQuantity of Corn Economics CORN P QS 10 20 30 40 50 60 70 80 ManagerialQuantity Economics 60 45 50 30 35 20 20 0 5 -- Q 22 of Corn MARKET DEMAND & SUPPLY Price of Corn PQ 4 S $5 4 3 Decrease 2 in Quantity 1 Supplied 3 Supplied o S’ in Supply CORN MARKET P QD $5 2,000 4 4,000 3 7,000 2 11,000 1 16,000 P $5 23 CORN MARKET S PQ At a $4 price 4 $5 supplied than 4 li th demanded 3 2 1 more is being 3 2 1 o Q Surplus S 12,000 10,000 7,000 4,000 1,000 D 2 4 6 78 10 12 14 16 ManagerialQuantity of Corn Economics Q 24 6 MARKET DEMAND & SUPPLY Price of Corn CORN MARKET P QD $5 2,000 4 4,000 3 7,000 2 11,000 1 16,000 P S $5 CORN MARKET PQ At a $2 price 4 $5 4 demanded than 3 supplied 2 1 Shortage more is being 3 2 1 o MARKET DEMAND & SUPPLY Price of Corn S 12,000 10,000 7,000 4,000 1,000 D 2 4 6 78 ManagerialQuantity Economics 101112 14 16 P QD $5 2,000 4 4,000 3 7,000 2 11,000 1...
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