Post on 26-Dec-2015
Quiz ReturnedLaw of SupplyHomeworkSupply and DemandWorksheet Homework
Read Naked Economics, Chapter 1Review Powerpoint for next class (online)Read “Current Reading Assignment” (online)
Law of Supply
When price increase, the quantity supplied increases.
When price decreases, the quantity supplied decreases.
P Qs , P Qs
A direct relationship.
A Supply Schedule is a table that relates Price (the driver) to Quantity supplied (the responder)
P QsThis is a Supply Schedule
The Law of Supply can be represented graphically
Price
Supply Curve
Quantity
Why does the Supply curve go “low to high”?
Because when price is high, quantity supplied is highAnd when price is low, quantity supplied is low.
ELASTICITY OF SUPPLY How sensitive are suppliers to a
change in price P Qs = Elastic Supply
P Qs = Inelastic Supply
Remember…Law of Supply still applies
Length of time to produce the good or service is the main determinant of the elasticity of supply
The longer it takes to produce the good or service, the more inelastic.
Helpful Hint…Inelastic is the long word and that takes a long time to produce
Supply curves, elastic and inelastic
Price
Quantity
Inelastic Long time to produce Ex. Airplanes, gasoline, wine
Elastic Short time to produce Ex. Hamburgers, bottled water, music files
Questions on supply
1. What is the law of supply?(a) the lower the price, the larger the quantity supplied(b) the higher the price, the larger the quantity supplied(c) the higher the price, the smaller the quantity supplied(d) the lower the price, the more manufacturers will produce the good
2. What happens when the price of a good down?(a) existing producers will expand and some new producers will enter
the market(b) some producers will produce less and others will drop out of the
market(c) existing firms will continue their usual output but will earn less(d) new firms will enter the market as older ones drop out
Government Influences on SupplyBy raising or lowering the cost of producing goods, the government can encourage or discourage an entrepreneur or industry.
SubsidiesA subsidy is a government payment that supports a business or market. Subsidies cause the supply of a good to increase.
TaxesThe government can reduce the supply of some goods by placing an excise tax on them. An excise tax is a tax on the production or sale of a good.
RegulationRegulation occurs when the government steps into a market to affect the price, quantity, or quality of a good. Regulation usually raises costs.
Shifts of the Supply Curve
Price
Quantity
Supply CurveTaxes & Regulation
Subsidies
What is the effect on price?
Government Influences on Supply
EXAMPLES?
Subsidies…Electric Cars, College education, “green industries”
Taxes…Cigarettes, alcohol, green house gases
Regulation….Cars, Housing
OTHERS?
Supply and Demand
Reading the graph
Price
Quantity
Demand
Supply
Equilibrium5 Parts toa fully labeledSupply andDemand graph1. Price2. Quantity3. Supply4. Demand5. Equilibrium
Supply and Demand
Equilibrium determines market price and market quantity.
Price
Quantity
Demand
Supply
Equilibrium5 Parts toa fully labeledSupply andDemand graph1. Price2. Quantity3. Supply4. Demand5. Equilibrium
Supply and Demand
Now show the effect of an increase in demand
Price
Quantity
Demand
Supply
Equilibrium
Supply and Demand
Increase shifts the curve to the right (remember…I = R, D = L) and changes the equilibrium (i.e. price and quantity)
Price
Quantity
Demand
Supply
New Equilibrium
Supply and Demand
Increase shifts the curve to the right (I = R, D = L) and changes the equilibrium
(i.e. price and quantity)
Price
Quantity
Demand
Supply
New Equilibrium
Supply and Demand
What was the effect on price and quantity?
Price
Quantity
Demand
Supply
New Equilibrium
Supply and Demand
What was the effect on price and quantity?
Price
Quantity
Demand
Supply
Equilibrium
Taxes and subsidies
What’s the public benefit that justifies theGovernment’s action (the tax)?
What are the unintended consequences of the Government’s action?
What are other alternatives for the Government to achieve the goal?
Let’s see if we got it…
http://www.wnyc.org/story/101889-morning-coffee-costs-more/
draw a fully labelled (five parts) supply and demand curve explaining what’s going on
Shortages and Surpluses
Price
Quantity
Demand
Supply
Equilibrium
SHORTAGE
SHORTAGE = Price BELOWthe equilibrium
price
Supply is less thanDemand.
Shortages and Surpluses
Price
Quantity
Demand
Supply
Equilibrium
SHORTAGE
What happenswhen there
is a shortageof something?
Shortages and Surpluses
Price
Quantity
Demand
Supply
Equilibrium
SURPLUS
SURPLUS = Price ABOVEthe equilibrium
Price.
Demand is less than supply
Shortages and Surpluses
Price
Quantity
Demand
Supply
Equilibrium
SURPLUS
And what happenswhen there is
a surplusof something?
Homework
Review Powerpoint for next class (online)
Read “Current Reading Assignment” (online)
Read Naked Economics, Chapter 1…“Who Feeds Paris?”
Helpful Hint…as you read Chapter One of Naked Economics, ask yourself “How does it relate to Supply and Demand?”