Download The Supply Curve - Kenston Local Schools

chapter 4
Market Supply and
Price Determination
4-1
The Law of Supply
4-2
Shifts in the Supply Curve
4-3
The Free Market Price
4-4
Role of Government in a
Free Market System
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
1
chapter 4
4-1
The Law of Supply
Learning Objectives
LO1-1 Explain the law of supply.
LO1-2 Understand the difference between an individual and
a market supply curve.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
2
chapter 4
4-1
The Law of Supply
Vocabulary
The Supply Curve
supply
quantity supplied
law of supply
supply schedule
supply curve
Market Supply
individual supply curve
market supply curve
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
3
chapter 4
The Supply Curve
Supply is the relationship between the price and
quantity supplied for a good or service.
 Based on the assumption that other variables remain
unchanged.
Quantity supplied is the amount of goods or
services sellers offer for sale at a given price.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-1 The Law of Supply
4
chapter 4
The Supply Curve
The law of supply states there is a direct relationship
between the price of a good and the quantity sellers
offer for sale.
 Sellers have a profit incentive to charge higher prices.
 At a higher price, suppliers devote more resources to a
product, which results in a greater quantity supplied.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-1 The Law of Supply
5
chapter 4
The Supply Curve
A supply schedule is a table the lists quantity of a
good or service sellers offer for sale a possible prices.
A supply curve is formed by the line connecting
possible price and quantity supplied responses of
sellers.
 Allows you to find the quantity demanded at each
possible selling price.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-1 The Law of Supply
6
chapter 4
The Supply Curve
Vocabulary
CHECKPOINT
Assume you could sell pizzas at a
higher price. How does the law
of supply relate to the number
of pizzas you would be willing
to offer for sale at higher price?
supply
quantity supplied
law of supply
supply schedule
supply curve
If the price of pizza increases, businesses that produce pizza will
supply greater quantities.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-1 The Law of Supply
7
chapter 4
Market Supply
An individual supply curve is the supply curve for
a single seller.
A market supply curve is the sum of all individual
supply curves in a market.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
7-1 Own Your Own Business
8
chapter 4
Market Supply
Vocabulary
CHECKPOINT
individual supply curve
market supply curve
Explain the difference
between an individual
supply curve and a
market supply curve.
An individual supply curve is the supply curve facing a single seller.
When all the individual supply curves in a market are added together,
the results is a market supply curve.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
7-1 Own Your Own Business
9
chapter 4
4-2
Shifts in the Supply
Curve
Learning Objectives
LO 2-1 Explain the difference between changes in
quantity supplied and changes in supply.
LO 2-2 Identify supply shifters factors that
cause changes in supply.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
10
chapter 4
4-2
Shifts in the Supply
Curve
Vocabulary
Difference Between Changes in
Quantity Supplied and Changes in
Supply
change in quantity
supplied
change in supply
Supply Shifter Factors
excise tax
subsidy
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
11
chapter 4
Difference Between Changes in Quantity Supplied
and Changes in Supply
Change in quantity supplied results solely from a
change in price.
 a movement between points along a stationary
supply curve
 Change is based on assumption that all other supply
shifter factors remain constant.
A chance in supply is an increase (rightward shift)
or a decrease (leftward shift) in the quantity supplied
at each price.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-2 Shifts in the Supply Curve
12
chapter 4
Difference Between Changes in Quantity Supplied
and Changes in Supply
Vocabulary
CHECKPOINT
What is the difference
between a movement
along a supply curve and
a shift of a supply curve?
change in quantity
supplied
change in supply
A movement along a supply curve is the result of a change in price that causes a
change in the quantity supplied. A change in supply is the result of a change in one
or more of the supply shifter factors. Movement of a supply curve to the right
shows that more products will be supplied at each price while movement to the left
shows that fewer products will be supplied at each price.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-2 Shifts in the Supply Curve
13
chapter 4
Supply Shifter Factors
Excise tax is a tax paid by the seller on the
production or sale of a good or service.
A subsidy is a payment from the government to
support a business that reduces its costs.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-2 Shifts in the Supply Curve
14
chapter 4
Supply Shifter Factors
Vocabulary
CHECKPOINT
excise tax
subsidy
Which supply shifter factor
is affected by an increase
or decrease in the supply
curve for airline tickets?
An increase in the price of oil would cause the supply curve for any
product that uses oil as a resource to shift to the left. This includes
airlines tickets because of the cost of jet fuel.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-2 Shifts in the Supply Curve
15
chapter 4
4-3
The Free Market Price
Learning Objectives
LO 3-1 Understand how a free market determines
equilibrium prices.
LO 3-2 Analyze how changes to demand and supply
affect the equilibrium price.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
16
chapter 4
4-3
The Free Market Price
Vocabulary
Free Market Equilibrium
surplus
shortage
disequilibrium
equilibrium
Changes in Market Equilibrium
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
17
chapter 4
Free Market Equilibrium
Surplus occurs at any price at which the quantity
supplied is greater than the quantity demanded.
Shortage occurs at any price at which the quantity
supplied is less than the quantity demanded.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-3 The Free Market Price
18
chapter 4
Free Market Equilibrium
Disequilibrium occurs at a market price at which
the quantity demanded does not equal the quantity
supplied.
Equilibrium occurs at a price at which the quantity
demanded and the quantity supplied at equal.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-3 The Free Market Price
19
chapter 4
Free Market Equilibrium
Vocabulary
CHECKPOINT
Why would you prefer
a world with all
markets in
equilibrium?
surplus
shortage
disequilibrium
equilibrium
If all markets are in equilibrium, there are no shortages or surpluses. In
this world, consumers are not frustrated because they want to buy
something but is not on the shelf. Sellers are not upset because unsold
merchandise is piling up in the storeroom unsold. Everyone is happy!
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-3 The Free Market Price
20
chapter 4
Changes in Market Equilibrium
An increase in demand causes both the equilibrium
price and the equilibrium quantity to increase.
Unwanted inventory forces a reduction in price and
quantity supplied, which causes the equilibrium price
and quantity to fall.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-3 The Free Market Price
21
chapter 4
Change in Market Equilibrium
When demand increases, the equilibrium price and
equilibrium quantity increase.
When demand decreases, the equilibrium price and
equilibrium quantity decrease.
When supply increases, the equilibrium price
decreases and equilibrium quantity increases.
When supply decreases, the equilibrium price
increases and equilibrium quantity decreases.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-3 The Free Market Price
22
chapter 4
Changes in Market Equilibrium
Vocabulary
CHECKPOINT
A hotel room in Myrtle
Beach, SC, charges $75
a night in February, but
$200 a night in July. Why is
there a difference in price?
Between February and July, there is an increase in demand for rooms. The
winter is the low-demand season. The result is a lower equilibrium price per
night. During the summer, the number of buyers increases and shifts the
market demand curve rightward. This is the high-demand season. Here the
result is a higher equilibrium price.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-3 The Free Market Price
23
chapter 4
4-4
Role of Government in
a
Free Market System
Learning Objectives
LO 4-1 Understand the effect of price ceilings and price
floors on a market.
LO 4-2 Discuss government regulation and
deregulation in the U.S. free market system.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
24
chapter 4
4-4
Role of Government in
a
Free Market System
Vocabulary
Can the Laws of Supply and Demand
Be Repealed?
price ceiling
rent control
price floor
minimum wage
Regulation of the Free Market System
regulation
deregulation
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
25
chapter 4
Can the Laws of Supply and Demand Be Repealed?
A price ceiling is a legally established highest price
a seller can charge for a good or service.
A rent control is a price ceiling place by the
government on rent.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-4 Role of Government in a Free Market System 26
chapter 4
Can the Laws of Supply and Demand Be Repealed?
A price floor is a legally established lowest price a
seller can charge for a good or service.
A minimum wage is a legally established lowest
hourly wage rate that can be paid to workers.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-4 Role of Government in a Free Market System 27
chapter 4
Can the Laws of Supply and Demand Be Repealed?
Vocabulary
CHECKPOINT
Why wouldn’t the government set
the minimum wage at $10,000 per
hour? What are they afraid of?
What would happen to employment if the minimum wage price
floor were eliminated?
prices ceiling
rent control
price floor
minimum wage
At $10,000/hr, workers would not have jobs. No unskilled worker is
worth $10,000 per hour. They would be replaced with machines.
Scrapping the minimum wage law would bring at least some new
workers into the workplace not previously worth the minimum wage.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-4 Role of Government in a Free Market System 28
chapter 4
Regulation of the Free Market System
A regulation is a government rule or law designed to
control business. The following are regulated:
 Food quality
 Activities that impact the environment
 Airline safety
 Most industries deal with some form of regulation.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-4 Role of Government in a Free Market System 29
chapter 4
Regulation of the Free Market System
Deregulation is the removal of government
restrictions or controls on a market.
 Higher production costs the resulting from regulation led
to the movement toward deregulation in the late 1970s
and 1980s.
 The primary industries impacted was transportation and
telecommunications.
 Successful deregulation should result in a decline in the
average price of a service with an increase in the volume
and variety of that service.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-4 Role of Government in a Free Market System 30
chapter 4
Regulation of the Free Market System
Vocabulary
CHECKPOINT
regulation
deregulation
How can laws and
regulation improve the
operation of the free
market system?
The government wants to promote competition and to protect consumers. The
Sherman Antitrust Act prevents conspiracies to fix prices. Fixing prices is anti-free
markets and makes consumers pay too much for products. Society also does not
want an economic system that produces unsafe food, drugs, products, or working
conditions. Neither does society want pollution in the air or water.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
4-4 Role of Government in a Free Market System 31