12/9 Warm-Up

12/9 Warm-Up

1. What is the Law of Demand?

2. 2. If a product has few substitutes, it will have ________________ demand.

SUPPLY p. 235

Objective – Describe the determinants of Supply through

notes and practice examples.

SUPPLY

Supply: is the amount of goods or services available

The Law of Supply states the higher the price, the larger the quantity produced (think like a producer now; at a higher price firms earn additional revenue and more firms will have incentive to enter the market)

P S P S

SUPPLY

Supply Schedule: show only how price of goods changes the quantity supplied (all other factors remain constant)

Supply Curve: Graphic representation of the supply schedule. (rises from left to right)

y-axis = price x-axis = quantity supplied

Price Qty Supplied

$.50 100

1.00 150

1.50 200

2.00 250

2.50 300

3.00 350

Market Supply Schedule

Graphing Supply

Price $

Quantity Supplied of pizza slices

0 50 100 150 200 250 300 350

3.50

3.00

2.50

2.00

1.50

1.00

.50

S

Elasticity of Supply

Elasticity of Supply is a measure of the way suppliers respond to a change in priceElastic Supply – a small increase in price

has a big effect on supply

Elasticity of Supply

Inelastic Supply – an increase in price has a small effect on supply (orange farmers – suppliers must plant more trees every 2 years to produce more fruit and supply doesn’t change in the short term)

WHY WOULD THERE BE A SHIFT (change) IN SUPPLY?


Change in the Price of an Input: Rise in input cost means decrease in supply because it is too expensive to make, and a fall in input cost will increase supply at all price levels.

As the cost of the inputs to make a car rise, then the production of cars will decline.


Technology – lowers cost and increases supply.

With improvements in technology producers are able to create more goods.


Government subsidy: payment by the gov’t that supports a business or market. Subsidies increase supply.

The government provides a subsidy to US farms, to encourage more production.


Increase or Decrease in taxes: increasing taxes decreases supply, decreasing taxes increases supply


Government Regulation: (emission control on cars, FDA nutritional codes on food products) Usually increases cost of production and decreases supply.

As the government places more car emission regulations on cars, the producer must use money to meet these requirements. Therefore, less money goes towards production and supply declines.


Future expectation of Prices: expect the price to go up the supplier will store goods to sell more in future


Number of suppliers: as more suppliers enter a market to produce a good the market supply of the good will rise (and the opposite)

Graphing Supply

Practice Graphing in Supply on p. 236 (in manual)

Graphing Supply

Price $

Quantity Supplied of pencils

0 100 200 300 400 500 600 700

.35

.30

.25

.20

.15

.10

.5

S1

S2

Shift to left - decrease in supply

4a. Is the change in the supply of pencils, due to the cost of graphite, a shift in the curve or a movement along the curve? A shift

b. Has the supply of pencils increased or decreased? decreased

5. In these circumstances tell if the supply of pencils would increase or decrease. a. Cost of wood decreases Increase b. Decrease in productivity of the pencil factory Decrease

c. Increase in technology of pencil making Increase

d. Government issues restrictions on the type Decrease of lead used in a pencil

e. Tax increase for the pencil factory Decrease f. Subsidy to all pencil producers Increase

Combining Supply and Demand p. 237

Objective: Explain how prices are set through supply and demand.

Equilibrium

Equilibrium: the point at which quantity demanded and quantity supplied are equal

At a point of equilibrium….the price and quantity are balancedthe market for a good/service is stable

Pri

ce

Qty

Point of equilibrium

Combining Supply and Demand

Price of CD’s Quantity Demanded Quantity Supplied

$5.00 100 10

$10.00 80 20

$15.00 30 30

$20.00 20 80

$25.00 10 100

Disequilibrium: any price or quantity not at equilibrium

Looking only at this Supply/Demand Schedule at what price will supply and demand be at EQUILIBRIUM?.............

Using the grid, plot the following points to draw a demand curve and a supply curve for CDs

Combining Supply and Demand P

rice

$

Quantity0 10 20 30 40 50 60 70 80 90 100

25.00

20.00

15.00

10.00

5.00

S

D

E 1

2

3

Disequilibrium

SHORTAGE

Excess Demand: when quantity demanded is more than quantity supplied (aka SHORTAGE!)

SHORTAGE

Pri

ce

Quantity

SURPLUS

Excess Supply: when quantity supplied is more than quantity demanded (aka SURPLUS!)

SURPLUSP

rice

Quantity

Shifts in the Curves

A shift in the demand curve or the supply curve will result in a new equilibrium price.

A new equilibrium point

Quantity

Pri

ce

Draw this in your notes

Shifts in Demand and Supply Curves

Draw this in your notes!

D1

D2

S1

S2

E1

E2

E3

Government Intervention in a Market EconomyPrice Ceiling: a maximum price that can

be legally charged for a good or service (example: rent control)

Price Floor: a minimum price for a good or service

(example: minimum wage)

Price Floor

Price Ceiling

Inflation and Deflation

Inflation: a general increase in prices (over the years, prices rise and fall, but in the American economy, they have mostly risen)

Deflation: A substantial drop in the prices

Understanding Supply and Demand

Start on the supply and demand practice on p. 239 and 240 of your manual.

Note: You will use the grid to graph supply, demand and a shift in supply and a shift in demand. (4 curves)

Homework

22.1, 23.1 reading guides, pp. 243-244

Understanding Supply and Demand P

rice

$

Quantity0 50 100 150 200 250 300 350

S1

D1

E1

.60

.50

.40

.30

.20

.10

D2

S2

E2

Warm-Up

1. Give an example of an elastic good.2. Give an example of an inelastic good.3. Give one reason why the demand

curve may shift to the right.4. Give one reason why the supply curve

would shift to the left.5. Give an example of complimentary

goods (not one already in the notes).

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12/9 Warm-Up