Transcript Unit 2 supply 2006 mkr revised

SUPPLY DEFINED
SUPPLY SCHEDULE
Various Amounts
CORN
P QS
$1
2
3
4
5
5
20
35
50
60
SUPPLY DEFINED
SUPPLY SCHEDULE
Various Amounts
CORN
P QS
$1
A Series of Possible Prices 2
3
4
5
5
20
35
50
60
…a specified time period
…other things being equal
How Producers or sellers behave
in the market place
• Supply is a curve or schedule that relates
various quantities of an item that sellers
will put in the market place at alternative
prices, cp
• Therefore Supply expresses a relationship
between Price and Quantity of Supply
LAW OF SUPPLY
A direct relationship exists
between price and quantity
supplied
• As Price Rises…
…Quantity Supplied Rises
• As Price Falls…
…Quantity Supplied Falls
What is the relationship
•
•
•
•
Direct
Positive
Upward moving
Linear
• market supply curve is an aggregation of
individual supply curves.
• Why: as price increases, sellers are willing and
able to put more in the market place
Movement or Shifts In Supply
• Movement on Supply Curve only caused price
changes: change in price=change in quantity of
supply
SHIFTS
• Non-Price Determinates of supply
Technology Changes
Price of Other related products
(Substitutes and complements)
Cost of Factors
Taxes and Subsidies
Expectations: What will happen
in the future
Regulations
TOFTERMS
Shift to right and left
• Right = increase warning it looks lower
• Left= decrease warnig it looks higher
• Be careful Draw it
Supply versus Quanity
• Change in quantity supply=movement
• Change in supply= shift
PRICE ELASTICITY OF SUPPLY
Percentage change in quantity
supplied of good X
Es=____________________
Percentage change in
the price of good X
Now, compare the immediate
market period, the short-run,
and long run.
PRICE ELASTICITY OF SUPPLY
• Immediate Market period
An increase in
demand without
enough time to
change supply
causes…
PRICE ELASTICITY OF SUPPLY
Short Run
An increase in
demand with
less intensity
supply use
causes...a lower
increase in price
PRICE ELASTICITY OF SUPPLY
Long Run
An increase in
demand in the
long run allows
greater change
causing...
Even more elastic
response - less
price increase
Equilibrium
• Where the sellers and consumers come together
• The Point at which
Quantity Demand =Quantity Supply
Market Clearing Price
• At equilibrium the firms are happy
it is possible to sell all that can produce.
At that Price consumers are happy because
they are getting all they demand
• Above equilibrium is excess supply, and below is
excess demand.
The Determination of Price
• Equilibrium price and output
• response to shortages and surpluses
• significance of “equilibrium”
• Demand and supply curves
• effect of price being above equilibrium
• surplus  price falls
The Determination of Price
• effect of price being below equilibrium
• shortage  price rises
• Effects of shifts in the demand curve
• movement along S curve and new D curve
• rise in demand (rightward shift)  P rises
• fall in demand (leftward shift)  P falls
• Effects of shifts in the supply curve
• movement along D curve and new S curve
• rise in supply (rightward shift)  P falls
• fall in supply (leftward shift)  P rises
OH NO!!!! What if both shift?
A WHOLE LOT OF TIRES AND
TOFTERMS
• If changes in both demand and supply are
increases: price relatively the same but
increase in Quantity
• If changes in both demand and supply are
decreases: price relatively the same but
decrease in Quantity
Now if the shifts are opposite
• Demand increase (right) and supply
decrease (left)
• Then the price always increases and quantity is
same
• Demand decreases (left) and supply
increases (right)
• Then price decreases and quantity is same
Problems
What if the price is above The
market equilibrium or below the
market euilibrium?
Shortages or Surpluses
Market place must adjust
Market must adjust
• To elimitate shortages and surpluses
• Shifts in demand and supply cause the market
equilibrium price to change and quantity to
change.
• Demand decreases (left): both the price and quantity
decrease
• Demand increases (right): both the price and quantity
increase
• Supply decreases (Left): price increases and quantity
decreases
• Supply increases (right): price decreases and the quantity
increases
MARKET EQUILIBRIUM
•
•
•
•
•
•
Equilibrium Price & Quantity
Rationing Function of Prices
Changes in Demand
Changes in Quantity Demanded
Changes in Supply
Changes in Quantity Supplied
Complex Cases
Multiple Shifts…
• Supply Increases; Demand
Decreases
• Prices Decrease
• Quantity Indeterminate
• Supply Decreases; Demand
Increases
• Price Increases
• Quantity Indeterminate
Complex Cases
Multiple Shifts…
• Supply Increases; Demand
Increases
• Prices Indeterminate
• Quantity Increases
• Supply Decreases; Demand
Decreases
• Price Indeterminate
• Quantity Decreases
Government Set Prices
• Price Ceilings
• Shortages
• Rationing Problem
• Black Markets
• Rent Controls
• Price Floors
• Surpluses
Government Set Prices
• Price Ceilings
• Shortages
• Rationing Problem
• Black Markets
• Rent Controls
• Price Floors
• Surpluses
Problems to think about
• Explain why supply curve has a positive slope
• Explain why an increase in number of producers
in a market causes the market supply curve to
shift right
• Assume the widget market is in quilibrium. Then
the JAPANESE producers begin exporting widgets
to the US. Analyze the effect of the imports on the
price of widgets the quantity exchanged and the
quantity produced in the US.
Price Ceilings and Floors
Excise taxes