Transcript supply, combining supply and demand

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
Market Supply Schedule
Price
$.50
1.00
1.50
2.00
2.50
3.00
Qty
Supplied
100
150
200
250
300
350
Graphing Supply
3.50
Price $
S
3.00
2.50
2.00
1.50
1.00
.50
0
50
100
150
200 250
300
Quantity Supplied of pizza slices
350
Elasticity of Supply
Elasticity of Supply is a measure of the
way suppliers respond to a change in
price
Elastic 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?
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.
WHY WOULD THERE BE A SHIFT
(change) IN SUPPLY?
 Technology – lowers cost and
increases supply.
With improvements in technology
producers are able to create more
goods.
WHY WOULD THERE BE A SHIFT
(change) IN SUPPLY?
 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.
WHY WOULD THERE BE A SHIFT
(change) IN SUPPLY?
 Increase or
Decrease in taxes:
increasing taxes
decreases supply,
decreasing taxes
increases supply
WHY WOULD THERE BE A SHIFT
(change) IN 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.
WHY WOULD THERE BE A SHIFT
(change) IN SUPPLY?
 Future expectation of Prices: expect
the price to go up the supplier will
store goods to sell more in future
WHY WOULD THERE BE A SHIFT
(change) IN SUPPLY?
 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
S2
S1
.35
Price $
.30
Shift to left decrease in
supply
.25
.20
.15
.10
.5
0
100
200
300
400 500
600
Quantity Supplied of pencils
700
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….
Price
the price and quantity are balanced
the market for a good/service is stable
Point of
equilibrium
Qty
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
Looking only at this Supply/Demand Schedule at what price
will supply and demand be at EQUILIBRIUM?.............
Disequilibrium: any price or quantity not at
equilibrium
Using the grid, plot the following points to draw a demand curve
and a supply curve for CDs
Combining Supply and Demand
S
25.00
2
Price
$
20.00
15.00
E
1
Disequilibri
um
10.00
5.00
3
0
10
20
30
40
50
D
60
Quantity
70
80
90 100
SHORTAGE
Price
Excess Demand: when quantity
demanded is more than quantity supplied
(aka SHORTAGE!)
SHORTAGE
Quantity
SURPLUS
Excess Supply: when quantity supplied is
more than quantity demanded (aka
SURPLUS!)
Price
SURPLUS
Quantity
Shifts in the Curves
A shift in the demand curve or the supply
curve will result in a new equilibrium price.
Price
Draw
this
in
your
notes
A new equilibrium
point
Quantity
Shifts in Demand and Supply Curves
Draw this in your notes!
S2
E3
S1
E2
E
1
D
D2
1
Government Intervention in a Market
Economy
Price Ceiling: a maximum price that can
be legally charged for a good or service
(example: rent control)
Price Ceiling
Price Floor
Price Floor: a minimum price for a good
or service
(example: minimum wage)
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
S1
Price
$
S2
.60
E2
.50
.40
E1
.30
.20
.10
D1
0
50
100
150
200 250 300 350
Quantity
D2
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).