Download Unit 2 Economics

Unit 2 Economics
Microeconomics: Supply and Demand
Essential Question:
• Explain the Law of Supply and how changes in our
society result in shifts in producer’s willingness and
ability to provide goods and services.
• Give specific examples of real world events that would
result in shifts in supply for particular products.
Determinants of Elasticity
• Substitutability (more substitutes = more
elastic)
• Proportion of Income (larger the portion of
income = more elastic)
• Luxuries (more elastic) versus Necessities (less
elastic/inelastic)
• Time (more time = more elastic)
Relatively Elastic Demand
• Total Revenue (TR)
TR = P x Q
Elastic Demand (lower prices = higher total revenue,
higher prices = lower total revenue, Inverse
relationship) P
$3
a
2
b
1
D
1
0
10
20
30
40
Q
Relatively Inelastic Demand
• Total Revenue (TR)
TR = P x Q
Inelastic Demand (lower prices = lower total revenue,
higher prices = higher total revenue, direct
relationship)
P
c
$4
3
2
d
1
D2
0
10
20
Q
Elasticity of Demand
• https://www.youtube.com/watch?v=HHcblIxi
AAk
Unit Elasticity
• Total Revenue (TR)
TR = P x Q
Unit-Elastic (changes in price do not change total
revenue)
P
e
$3
2
f
1
D3
0
10
20
30
Q
Price Elasticity of Demand
Extreme Cases
Perfectly Inelastic Demand
P
D1
Perfectly
Inelastic
Demand
(Ed = 0)
0
Q
Perfectly Elastic Demand
P
0
Perfectly
Elastic
Demand
(Ed = ∞)
D2
Q
Demand and Supply
• https://www.youtube.com/watch?v=RP0j3Lnl
azs
Supply
• Definition – amount of a product or service
that producers are willing and able to make at
various prices
• Law of Supply – as prices rise, quantities
supplied rise, as prices fall, quantities supplied
fall (direct relationship)
A change in the price of a product results in a
change in the QUANTITY SUPPLIED! (it does NOT
shift Supply)
Supply
• https://www.youtube.com/watch?v=ewPNugI
qCUM
Supply Curve
• Definition: a graph showing the various
combinations of prices and quantities
supplied
Supply Curve
• https://www.youtube.com/watch?v=nKvrbOq
1OfI
Supply Schedule
• Definition: table/chart listing the quantities
that will be produced at each price
Supply Schedule
• https://www.youtube.com/watch?v=kidjNiZpT
8Y
Individual Supply
P
6
Individual
Supply
Qs
60
4
50
3
35
2
20
1
5
5
Price (per bushel)
P
$5
S1
4
3
2
1
0
10
20
30
40
50
60
Quantity Supplied (bushels per week)
70
Q
Individual Supply
Determinants of Supply
(factors that cause a shift or a change in Supply)
• Resource Prices (inputs)
• Productivity
• Technology
• Taxes and Subsidies
• Government Regulation
• Producer Expectations
• Number of Sellers
 If it becomes cheaper, easier, or faster to make
products, then supply will increase
 If it becomes more difficult, more expensive, or
slower to make products then Supply will
decrease
Individual
Supply
Supply Can Increase or Decrease
P
6
Individual
Supply
Qs
60
4
50
3
35
2
20
1
5
S1
5
Price (per bushel)
P
$5
S3
S2
4
3
2
1
0
2
4
6
8
10
12
Quantity Supplied (bushels per week)
14
Q
Essential Question:
• Explain the Law of Supply and how changes in our
society result in shifts in producer’s willingness and
ability to provide goods and services.
• Give specific examples of real world events that would
result in shifts in supply for particular products.