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12/9 Warm-Up

12/9 Warm-Up. What is the Law of Demand? 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

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12/9 Warm-Up

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  1. 12/9 Warm-Up • What is the Law of Demand? • 2. If a product has few substitutes, it will have ________________ demand.

  2. SUPPLY p. 235 Objective – Describe the determinants of Supply through notes and practice examples.

  3. 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

  4. SUPPLY • Market Supply Schedule • 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

  5. Graphing Supply 3.50 3.00 2.50 2.00 1.50 1.00 .50 S Price $ 0 50 100 150 200 250 300 350 Quantity Supplied of pizza slices

  6. 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

  7. 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)

  8. Supply decrease WHY WOULD THERE BE A SHIFT (change) IN SUPPLY? Original supply Supply increase

  9. 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.

  10. 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.

  11. 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.

  12. Increase or Decrease in taxes: increasing taxes decreases supply, decreasing taxes increases supply WHY WOULD THERE BE A SHIFT (change) IN SUPPLY?

  13. 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.

  14. 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

  15. 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)

  16. Graphing Supply • Practice Graphing in Supply on p. 236 (in manual)

  17. Graphing Supply S2 S1 .35 .30 .25 .20 .15 .10 .5 Price $ Shift to left - decrease in supply 0 100 200 300 400 500 600 700 Quantity Supplied of pencils

  18. 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

  19. Combining Supply and Demand p. 237 Objective: Explain how prices are set through supply and demand.

  20. Equilibrium • Equilibrium: the point at which quantity demanded and quantity supplied are equal • At a point of equilibrium…. • the price and quantity are balanced • the market for a good/service is stable Point of equilibrium Price Qty

  21. Combining Supply and Demand 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

  22. Combining Supply and Demand S 25.00 20.00 15.00 10.00 5.00 2 Price $ E 1 Disequilibrium 3 D 0 10 20 30 40 50 60 70 80 90 100 Quantity

  23. SHORTAGE • Excess Demand: when quantity demanded is more than quantity supplied (aka SHORTAGE!) Price SHORTAGE Quantity

  24. SURPLUS • Excess Supply: when quantity supplied is more than quantity demanded (aka SURPLUS!) SURPLUS Price Quantity

  25. Shifts in the Curves A shift in the demand curve or the supply curve will result in a new equilibrium price. A new equilibrium point Price Draw this in your notes Quantity

  26. Shifts in Demand and Supply Curves Draw this in your notes! S2 E3 S1 E2 E1 D2 D1

  27. 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 Floor: a minimum price for a good or service (example: minimum wage) Price Ceiling Price Floor

  28. 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

  29. 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)

  30. Homework • 22.1, 23.1 reading guides, pp. 243-244

  31. Understanding Supply and Demand S1 S2 .60 .50 .40 .30 .20 .10 Price $ E2 E1 D1 D2 0 50 100 150 200 250 300 350 Quantity

  32. 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).

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