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September 25, 2013. Review Demand Packet Notes: Supply Video Clips? Supply and Demand Curves HW: Supply Packet. Supply. Schedule or curve Amount producers are willing and able to sell at a given price Individual supply Market supply. 3- 2. LO2. Law of Supply.

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september 25 2013
September 25, 2013
  • Review Demand Packet
  • Notes: Supply
  • Video Clips? Supply and Demand Curves

HW: Supply Packet

supply
Supply
  • Schedule or curve
  • Amount producers are willing and able to sell at a given price
  • Individual supply
  • Market supply

3-2

LO2

law of supply
Law of Supply
  • Other things equal, as the price rises, the quantity supplied rises and as the price falls, the quantity supplied falls.
  • Reason:
  • Price acts as an incentive to producers
  • Costs will rise!

3-3

LO2

the supply curve
The Supply Curve

5

4

3

2

1

0

P

S

Price (per bushel)

Q

10 20 30 40 50 60 70

Quantity supplied (bushels per week)

3-4

LO2

changes in supply
Changes in Supply

P

S3

S1

$6

5

4

3

2

1

0

Decrease

in supply

S2

Price (per bushel)

Increase

in supply

Q

2 4 6 8 10 12 14 16

Quantity supplied (thousands of bushels per week)

3-5

LO2

changes in supply1
Changes in Supply

P

Change in Quantity Supplied

S3

S1

$6

5

4

3

2

1

0

S2

Price (per bushel)

Change in Supply

Q

2 4 6 8 10 12 14 16

Quantity supplied (thousands of bushels per week)

3-6

LO2

determinants of supply supply shifters
Determinants of Supply“Supply Shifters”
  • What if the “All other things equal” assumption changes???
  • Cost is the #1 Factor in Supply!
  • A change in resource prices
  • A change in technology
  • A change in the number of sellers
  • A change in taxes (a cost) and subsidies (tax in reverse)
  • A change in prices of other goods
  • A change in producer expectations

3-7

LO2

market equilibrium
Market Equilibrium
  • Equilibrium occurs where the demand curve and supply curve intersect.
  • Surplus and shortage
  • Rationing function of prices
  • Efficient allocation
    • Productive efficiency
    • Allocative efficiency

3-8

LO3

market equilibrium1
Market Equilibrium

200 Buyers & 200 Sellers

Market

Supply

200 Sellers

Market

Demand

200 Buyers

6

5

4

3

2

1

0

6,000 Bushel

Surplus

S

P

Qd

P

Qs

2,000

4,000

7,000

11,000

16,000

$5

4

3

2

1

$5

4

3

2

1

12,000

10,000

7,000

4,000

1,000

Price (per bushel)

3

7,000 Bushel

Shortage

D

2 4 6 8 10 12 14 16 18

7

Bushels of Corn (thousands per week)

3-9

LO3

rationing functions of prices
Rationing Functions of Prices
  • The ability of the competitive forces of demand and supply to establish a price at which selling and buying decisions are consistent.

3-10

LO3

efficient allocation
Efficient Allocation
  • Productive efficiency
    • Producing goods in the least costly way
    • Using the best technology
    • Using the right mix of resources
  • Allocative Efficiency
    • Producing the right mix of goods
    • The combination of goods most highly valued by society

3-11

LO3

changes in demand and equilibrium

`

`

Changes in Demand and Equilibrium

Changes in Demand and Equilibrium

D increase:

P, Q

D decrease:

P, Q

P

P

S

S

D2

D3

D1

D4

0

0

Decrease in demand

Increase in demand

3-12

LO4

LO4

changes in demand and equilibrium1

`

`

Changes in Supply and Equilibrium

Changes in Demand and Equilibrium

S increase:

P, Q

S decrease:

P, Q

P

P

S1

S4

S3

S2

D

D

0

0

Decrease in supply

Increase in supply

3-13

LO4

LO4

government set prices
Government Set Prices
  • Price Ceilings
    • Set below equilibrium price
    • Rationing problem
    • Black markets
  • Example: Rent control

3-15

LO5

government set prices1
Government Set Prices

P

S

$3.50

P0

ceiling

3.00

PC

D

Shortage

Q

Qs

Q0

Qd

3-16

LO5

government set prices2
Government Set Prices
  • Price Floors
    • Prices are set above the market price
    • Chronic surpluses
  • Example: Minimum wage laws

3-17

LO5

government set prices3
Government Set Prices

P

S

Surplus

floor

$3.00

Pf

P0

2.00

D

Q

Qd

Q0

Qs

3-18

LO5

legal market for human organs
Legal Market for Human Organs
  • What if we created a legal market for human organs?
  • Positive effects
    • Increase the incentive to donate
    • Eliminate the persistent shortage of eyes, livers, hearts, kidneys, etc.

3-19

legal market for human organs1
Legal Market for Human Organs
  • Negative effects
    • Increases the cost of medical care
    • Diminishes the special nature of life by commercializing it

3-20

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