• When the market price for physician services rises from $100 to $150 an office visit, the quantity supplied rises from 10 to 12 million visits per week. • As soft drink supply is very iti t i h ft $200 $ Physician Services market 100 S Quantity (million 6-packs) Price 50 150 200 sensitive to price changes, soft drink supply is described as elastic ; as physician services supply is relatively insensitive to price changes, physician services supply is described as inelastic . $150 $100 4 6 8 10 12 Quantity (million visits) 2 16 18 20 14 • Short Run – the period of time during which firms do not have sufficient time to change plant size. – Supply tends to be inelastic in the short run. The Short and Long Run • Long Run – the period of time during which firms have enough time to change plant size. – Supply tends to be much more elastic in the long run.
9 Changes in Supply Versus Changes in Quantity Supplied • Change in Supply – a shift in the entire supply curve. Ch i Q tit S li d Changes in Supply and Quantity Supplied • Change in Quantity Supplied – movement along the same supply curve in response to a change in price. Price (dollars) $4.00 • If the market price for gasoline is $4.00 a gallon, the supply curve for gasoline S 1 indicates Q 1 units would be supplied. A Change in Supply S 2 S 1 $3.50 $3.00 • If, somehow, the opportunity costs for petrol manufacturers changed then the supply of gas may change . • Consider the case where the • If the price fell to $3.50, the quantity supplied would fall to Q 2 units (where Q 2 < Q 1 ). Quantity (units of gasoline per year) Q 3 • Consider the case where the cost of crude oil (an input in gasoline production) increases, the supply of gasoline at all potential market prices would fall. Now at $3.50, Q 3 units are supplied (where Q 3 < Q 2 < Q 1 ). Q 2 Q 1 • Changes in resource (input) prices – an increase (decrease) in resource prices decreases (increases) supply, shifts to left Supply Curve Shifters (right) • Changes (advances) in technology lowers production costs and increases the supply curve (shifts to right) • Elements of nature (good or bad weather, hurricanes, etc.) and political disruptions • Changes in taxes – increases (decreases) in taxes decrease (increase) supply.