Transcript Supply and Shifters of Supply

Unit 2: Supply, Demand,
and Consumer Choice
Demand Practice
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
In-and-Out Hamburgers (a normal good)
1. Population boom
2. Incomes fall due to recession
3. Price for Carne Asada burritos (a substitute) falls to
$1
4. Price increases to $5 per In-and-Out burger
5. New health craze- “No ground beef”
6. In-and-Out announce that they will significantly
increase prices NEXT month
7. Government heavily taxes shake and fries causes
their prices to quadruple.
8. In-and-Out lowers price of burgers to $1
Supply
Supply Defined
What is supply?
Supply is the different quantities of a good that sellers
are willing and able to sell (produce) at different prices.
What is the Law of Supply?
There is a DIRECT (or positive) relationship between
price and quantity supplied.
•As price increases, the quantity producers make
increases
•As price falls, the quantity producers make falls.
Why? Because, at higher prices profit seeking
firms have an incentive to produce more.
EXAMPLE: Mowing Lawns
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o 5 10
20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 3035 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
Plot the Points
$5
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
S
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
Connect the Points
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
S
P QS
4
What if
more producers
enter the market?
3
2
1
o
CORN
10 20 30 40 50 60 70 80
Quantity of Corn
$5
4
3
2
1
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
Increase
in
Supply
S
CORN
P QS
4
$5
4
3
2
1
3
2
1
o
S’
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60 80
50 70
35 60
20 45
5 30
GRAPHING SUPPLY
Price of Corn
P
$5
4
3
2
S
What if
there is a
drought?
1
o
10 20 30 40 50 60 70 80
Quantity of Corn
CORN
P QS
$5
4
3
2
1
Q
60
50
35
20
5
GRAPHING SUPPLY
Price of Corn
P
$5
Decrease
in
Supply
S’
S
P QS
4
$5
4
3
2
1
3
2
1
o
CORN
10 20 30 40 50 60 70 80
Quantity of Corn
Q
60 45
50 30
35 20
20 0
5 --
6 DETERMINANTS OF SUPPLY (SHIFTERS)
1.
2.
3.
4.
Prices/Availability of inputs (resources)
Number of Sellers
Technology
Government Action: Taxes & Subsidies
Subsidies
A subsidy is a government payment that supports a business or market.
Subsidies cause the supply of a good to increase.
Taxes
Regulation
5. The
Opportunity
Cost
of
Alternative
government can reduce the
Regulation occurs when the
supply
of some goods by placing an government steps into a market to
Production
excise tax on them. An excise tax affect the price, quantity, or quality of
tax on the production orof
saleFuture
of
a good.
Regulation usually raises
6.is aExpectations
Profit
a good.
costs.
Changes in PRICE don’t shift the curve. It only
causes movement along the curve.
Supply Practice
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
In-and-Out Hamburgers
1. Mad cow kills 20% of cows
2. Price of burgers increase 30%
3. Government taxes burger producers
4. A Demand increase causes the price for
shakes to increase to $20
5. New bun baking technology cuts
production time in half
6. Minimum wage increases to $10
Putting Supply and Demand
Together
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity .
Price of Corn
CORN
MARKET
P
$5
4
3
2
1
QD
2
4
7
11
16
Equilibrium
Quantity is 7
P
S
$5
CORN
MARKET
P Q
4
$5
4
3
2
1
What happens if
price is too high?
Equilibrium
Price is $3
3
2
1
o
D
2
4
6
78
10 12 14 16
Quantity of Corn
Q
S12
10
7
4
1
At a $4 price quantity supplied is greater than
quantity demanded which causes a…
Price of Corn
CORN
MARKET
P
$5
4
3
2
1
QD
2
4
7
11
16
P
$5
Surplus
S
4
CORN
MARKET
P Q
$5
4
3
2
1
What happens if
price is too low?
3
2
1
o
D
2
4
6
78
10 12 14 16
Quantity of Corn
Q
S
12
10
7
4
1
At a $2 price quantity supplied is less than quantity
demanded which causes a…
Price of Corn
CORN
MARKET
P
$5
4
3
2
1
QD
2
4
7
11
16
P
S
$5
CORN
MARKET
P Q
4
3
2
Shortage
1
o
$5
4
3
2
1
D
2
4
6
78
101112 14 16
Quantity of Corn
Q
S12
10
7
4
1
The FREE MARKET system automatically pushes
the price toward equilibrium.
Price of Corn
CORN
MARKET
P
$5
4
3
2
1
QD
2
4
7
11
16
P
$5
Surplus
S
4
3
2
Shortage
1
o
CORN
MARKET
P Q
$5
4
3
2
1
D
2
4
6
78
10 12 14 16
Quantity of Corn
Q
S
12
10
7
4
1
Shifts in Supply or Demand change
equilibrium P and Q automatically
Supply and Demand Analysis
Easy as 1, 2, 3
1. Before the change:
• Draw supply and demand
• Label original equilibrium price and quantity
2. The change:
• Did it affect supply or demand first?
• Which determinant caused the shift?
• Draw increase or decrease
3. After change:
• Label new equilibrium?
• What happens to Price? (increase or decrease)
• What happens to Quantity? (increase or decrease)
Ex: Transformers become new Christmas mega hit.
S&D Analysis Practice
1. Before Change
2. The Change
3. After Change
In-and-Out Hamburgers
1. New bun baking technology cuts production time in
half.
2. Price of Burger King Woppers (a substitute good)
increases
3. Price of In-and-Out burgers falls from $2 to $1.
4. Minimum wage increases to $10