Transcript Demand, Supply and Equlibrium

Chapter 6:
Demand, Supply & Markets
The Supply Curve
• Supply
• The quantities of a good or service that
sellers are willing and able to sell at
various prices
• Similar to demand, supply can be shown
as a schedule and then as a graph
The Law of Supply
Law of Supply
• Increase in price (P) will increase quantity
supplied (Qs)
• Decrease in price (P) will decrease
quantity supplied (Qs)
• Direct relationship between P and Qs
An Increase In the Supply of Melons
P$
S
S1
$2.50
$2.00
$1.50
$1.00
$0.50
0
5
Q
Quantity Supplied (000’s)
10
15
20 25
An Increase In the Supply of Melons
• An increase in supply is represented by a
shift in the supply curve to the right (S1).
• At each price point, producers are willing
to supply more goods. For example, at
$1.00, producers were supplying 10,000
units. Now producers are willing to supply
15,000 (an increase of 5,000 units)
A Decrease in the Supply of Melons
P$
S0
S
$2.50
$2.00
$1.50
$1.00
$0.50
0
5
Q
Quantity Supplied (000’s)
10
15
20 25
What causes Demand & Supply
curves to shift?
Causes For Demand
Shifting
1. Market Size
2. Income (Normal / Inferior Goods)
3. Price of Substitutes
4. “ “ Complements
5. Tastes
6. Consumer
Expectations
Causes For Supply
Shifting
1. Change in Nature
2. Resource Price
3. Technology
4. Labour Productivity
5. # of Producers
6. Producer
Expectations
Market Equilibrium
• The point where the supply curve and the
demand curve intersect
• At this point, Qd = Qs
(quantity demanded = quantity supplied)
Market Equilibrium
Supply=Demand
P$
S
D
0
Q
Quantity
Equilibrium in the Market for Melons
P$
D
S
$2.50
$2.00
$1.50
$1.00
$0.50
0
5
Q
Quantity Supplied (000’s)
10
15
20 25
An Increase in the Demand for Computers
5
D2
Shortage of 100
300
(thousands)
A Decrease in the Demand for Computers
Surplus of 100
3
D0
200
(thousands)
An Increase in the Supply of Computers
Surplus of 100
3
300
(thousands)
S2
A Decrease in the Supply of Computers
S0
5
Shortage of 100
200
(thousands)
Elasticity of Supply
• Similar to Dd shows the responsiveness of
the quantity supply to a change in price
• The key factor effecting supply elasticity is
time.
• Given more time a producer can supply
more of a product in response to higher
prices
Elasticity of Supply
• Goods that can be stored easily,
inexpensively and for long periods of time
will be more elastic than more perishable
products
Gov’t Involvement in the Market
• At times the market system is unfair so in
our mixed market system the government
steps in to make the situation more fair
• If the government feels the price is too
high then they make the price legally
lower. This is called a ceiling price, but
the problem is Qd > Qs
Gov’t Intervention in the Market
• If the government feels the price is too low
then they make the price legally higher.
This is called a floor price, but the problem
is Qs > Qd
Your Turn
• Complete Page 133 #1-3
• Complete key terms definitions, page 119
and page 133