Download Econ CH 04 PP

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
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
7
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.
8
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.
9
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
10
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
11
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.
12
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.
13
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
14
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
15
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
16
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
17
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.
18
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.
19
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 20
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 21
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 22
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 23