Transcript Supply - Social Studies

The Basics of
Supply
Law of Demand vs. Law of Supply
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Partner A – take role of a producer
Partner B – take role of a consumer
Exploring Supply and Demand Handout
From your perspective as a producer or
consumer…how do the changes impact you?
(DO NOT CONSIDER ANYTHING OTHER
THAN PRICE)
Supply vs. Demand
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Selling price
increases $1 per
unit.
Supply vs. Demand
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Selling price
decreases $20 per
unit.
Supply vs. Demand
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Selling price
increases $20 per
unit.
Supply vs. Demand
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Selling price
decreases $1 per
unit.
Supply vs. Demand
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Selling price
increases $100 per
unit.
Supply vs. Demand
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Selling price
decreases $100 per
unit.
Debrief
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Compare responses with partner
Consumers – you shouldn’t have encountered any
difficulty here.
Consumers – move to one side of the room
Producers – move to the other side of the room
– Stand = Increase
– Sit = decrease
– Raise hand = no change
The Basics of Supply
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Like demand, the word supply has a specific
meaning in economics.
Supply refers to the willingness and ability of
sellers to produce a good or service
Willingness: a person wants or desires to produce and sell
the good
 Ability: a person is capable of producing and selling the
good
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Debrief
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More the selling price increased, the more
willing producers were to produce more of a
good/service. (this is law of supply – why not
supply more when you make more per item?)
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Consumer responses to prices changes is
the law of demand.
The Law of Supply
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The law of supply-quantity supplied varies
positively (or directly) with price, other
things constant.
Price =
quantity supplied
Price =
quantity supplied
Marginal cost of production
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If production costs increase, supply will
decrease.
If production costs decrease supply will
increase.
Why are price and quantity supplied
positively (directly) related?
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According to economists it is because of the
Profit motive.
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Producers are more willing and able to supply
more goods at higher prices than at low prices
because a higher price makes production more
profitable
Profit = Total Revenue – Total Cost
How We Look at Supply -- The
Supply Schedule and Curve
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A schedule is a table that lists the
quantity of a good that a
producer is willing to make at
each price. This is the STORY.
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The vertical axis ALWAYS shows
price
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The horizontal axis ALWAYS
shows quantity supplied
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Plot the points on the schedule
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Connect the dots!!
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The Supply curve slopes UP.
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Now you have created a PICTURE
OF THE STORY.
P
S
Q
Movement Along a Supply Curve
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A change in the price is a change in the
quantity provided, other things constant.
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This causes a movement along a supply
curve.
Change in Quantity Supplied
Price
Quantity
On to … Determinants of Supply
DETERMINANTS OF SUPPLY
Factors That Can Shift the Supply Curve:
Changes in . . .
–
The cost of resources used to make the good
–
Technology used to make the good
–
Producers’ price expectations
–
Producers’ expectations of the costs of resources
–Government
Action – excise tax (tobacco), Subsidies (Ethanol), and
Regulation (prevent pollution)
–
The number of sellers in the market (competition)
Competition….
What happened?
Number of sellers or producers
(availability)
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When new businesses enter a market,
supply will increase.
Also, supply will change if availability of
resources changes. For example, if a
freeze ruins most of the blueberry crops,
the supply of blueberry muffins will
decrease and cause price to increase.
DETERMINANTS OF SUPPLY
Factors That Can Shift the Supply Curve:
Changes in . . .
–
The cost of resources used to make the good
–
Technology used to make the good
–
Producers’ price expectations
–
Producers’ expectations of the costs of resources
–Government
Action – excise tax (tobacco), Subsidies (Ethanol), and
Regulation (prevent pollution)
–
The number of sellers in the market (competition)
What do you see?
Now what?
DETERMINANTS OF SUPPLY
Factors That Can Shift the Supply Curve:
Changes in . . .
–
The cost of resources used to make the good
–
Technology used to make the good
–
Producers’ price expectations
–
Producers’ expectations of the costs of resources
–Government
Action – excise tax (tobacco), Subsidies (Ethanol), and
Regulation (prevent pollution)
–
The number of sellers in the market (competition)
What does he need?
What is the issue?
DETERMINANTS OF SUPPLY
Factors That Can Shift the Supply Curve:
Changes in . . .
–
The cost of resources used to make the good
–
Technology used to make the good
–
Producers’ price expectations
–
Producers’ expectations of the costs of resources
–Government
Action – excise tax (tobacco), Subsidies (Ethanol), and
Regulation (prevent pollution)
–
The number of sellers in the market (competition)
Change in Expectations
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If a good or service is expected to lose
profit, the supply will decrease.
DETERMINANTS OF SUPPLY
Factors That Can Shift the Supply Curve:
Changes in . . .
–
The cost of resources used to make the good
–
Technology used to make the good
–
Producers’ price expectations
–
Producers’ expectations of the costs of resources
–Government
Action – excise tax (tobacco), Subsidies (Ethanol), and
Regulation (prevent pollution)
–
The number of sellers in the market (competition)
Practice Problem #1
What would happen to the supply of
pizza if more businesses enter the
pizza market?
Determinant?
 Increase or decrease in supply?
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Answer to Practice Problem #1
What would happen to the supply of pizza
if more businesses enter the pizza
market?
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Determinant – more sellers in the
market place (competition)
Increase in supply
Practice Problem #2
What would happen to the supply of Nike
shoes if there is an increase in the cost
of rubber?
Determinant?
 Increase or decrease in supply?
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Answer to Practice Problem #2
What would happen to the supply of Nike
shoes if there is an increase in the cost
of rubber?
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Determinant –The cost of resources used to
make the good
Decrease in supply
Practice Problem #3
A
new technology is invented that
allows factories to produce energy
drinks more efficiently.
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Determinant?
Increase or decrease in supply?
Answer to Practice Problem #3
A
new technology is invented that
allows factories to produce energy
drinks more efficiently.
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Determinant – Improved technology used to
make the good
Increase in supply
Practice Problem # 4
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A company that makes video games
pays their workers the minimum wage.
The government passes a law that
increases the minimum wage businesses
can pay workers.
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Determinant?
Increase or decrease in supply?
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Practice Problem # 4
A company that makes video games pays
their workers the minimum wage. The
government passes a law that increases
the minimum wage businesses can pay
workers.
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Determinant – the cost of resources to make the
goods
Decrease in supply of video games
Practice Problem # 5
A
computer company finds out a
competitor is planning to sell a new
and improved type of computer.
Determinant?
 Increase or decrease in supply?
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Answer to Practice Problem # 5
A
computer company finds out a
competitor is planning to sell a new
and improved type of computer.
Determinant – technology or producers’
price expectations
 Increase in supply now because
competition will likely lower prices later
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Movement Along a Supply Curve
Versus a Shift of the Curve
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Remember there is a difference between quantity
supplied (Qs) and supply (S).
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Markets never stand still, there are always outside
factors that change the actual price of the good or
how much is supplied altogether.
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A change in price creates a change in the quantity
supplied (Qs), other things constant.
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This causes a movement along the supply curve.
A change in one of the determinants of supply
causes a change in supply (S).
–
This causes in a shift of the supply curve.
Determinants of increased supply
change the story….. How so?
Original Story
New Story
Quantity
supplied of
pizza per week
(by millions)
Price of pizza
Quantity
Price of pizza
supplied of
pizza per week
(by millions)
9
$3.00
15
$3.00
14
$6.00
20
$6.00
19
$9.00
25
$9.00
25
$12.00
30
$12.00
30
$15.00
35
$15.00
---
$0.00
---
$0.00
How would determinants of increased
supply change the picture of supply?
$15
S1
Price per pizza
12
9
6
3
0
8
14
20
26
Millions of pizzas per week
32
How would determinants of increased
supply change the picture of supply?
S2
$15
S1
Price per pizza
12
9
6
3
0
8
14
20
26
Millions of pizzas per week
32
Review - Demand
1.
2.
3.
4.
5.
6.
The cowboy hat is no longer fashionable
The U.S. admits 1 million new immigrants
Autoworkers receive a 20% pay cut
Price of hot dogs increases, causing people to buy
less hot dog buns
Price of hot dogs decrease, causing people to buy
less hamburgers
Consumers expect a sharp increase in the price of
cars in the Fall, causing them to demand more in
the summer
Review - Demand
Factors that can shift the demand
curve, which include:
1. tastes, preferences, habits
2. number of buyers
3. income
4. price and availability of
complements
5. price and availability of substitutes
6. future expectations
1. The cowboy hat is no longer
fashionable
2. the U.S. admits 1 million new
immigrants
3. autoworkers receive a 20% pay
cut
4. price of hot dogs increases,
causing people to buy less hot
dog buns
5. price of hot dogs decrease,
causing people to buy less
hamburgers
6. consumers expect a sharp
increase in the price of cars in the
Fall, causing them to demand
more in the summer
Review - Supply
1.
2.
3.
4.
5.
the price of aluminum used to build cars increases
the price of bread increases causing bagel suppliers
to switch from bagel production to bread
faster assembly line process is developed permitting
more shoes to be made per hour
producers believe they will be able to charge more
for vitamin water because people want healthier
beverage choices
Tim Horton’s comes to the United States to compete
with others in selling coffee and breakfast food
Review - Supply
Factors that can shift the supply
curve, which include:
1. Change in the cost of resources
used to make the good
2. Producers’ expectation on the
costs of resources
3. change in technology used to
make the good
4. change in producers’ price
expectations
5. Change in number of sellers in the
market.
1. the price of aluminum used to
build cars increases
2. the price of tobacco increases
due to excise taxes causing
tobacco suppliers to decrease
production
3. faster assembly line process is
developed permitting more shoes
to be made per hour
4. producers believe they will be
able to charge more for vitamin
water because people want
healthier beverage choices
5. Tim Horton’s comes to the United
States to compete with others in
selling coffee and breakfast food
Graphing Changes in Supply
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Handout
7 groups
Chart paper and markers
I will give you one topic
HOWEVER, you need to complete this
handout in full
Present to the class
What’s the Difference?
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Complete handout to show that you know the
difference between supply and demand.
Determinants of Demand & Supply
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Need a partner, 1 piece of construction paper,
scissors, & glue. 8 Minutes to complete!
Find a picture and/or article that fits the
determinant of demand AND supply.
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Ex: Unemployment rate increases (income effect) –
determinant of demand.
Ex: Monroe Sears to start closing sale (competition) –
determinant of supply.
Be prepared to tell class how current event fits
into determinants of supply/demand and how
the graph will change.
Productivity
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Total Product = product X input (labor) (we
will complete a wkst on this)
Marginal Product = change in output by
adding one more unit of input (an extra
worker).
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You want this to increase
Calculate change in total product / change in # of
workers.
Labor Affects Production
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Diminishing Returns to Labor – As you add
labor, productivity will increase to a certain
point, then will decrease (marginal product
and total product will go backwards). Pg 139
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Increasing Marginal Returns – add labor, total and
marginal product increases (this is good).
Diminishing Marginal Returns – not really worth
adding another worker.
Negative Marginal Returns – too many workers,
getting in each others way.
Marginal Cost
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Adding additional cost of producing one more
unit of their product.
Bottom line…once it starts to increase, stop
hiring.
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Calculate Change in Total cost / Change in Total
Product