Download AP Week 4 - Ector County ISD.

AP Week 4
Supply and Demand
Modules 5-9 Due by end of the week
Monday
• Objective: Be able to explain the Law of Supply and compare it to the
Law of Demand. Be able to Draw a Supply Curve.
• Be able to use the terminology correct to show movement or a shift
• Do Now: Get your notes out and be able to show them to me. Check
to see: are they dated, do you have annotation are they all collected
together, do you have the handouts in with the notes?
• EQ: How is Supply like Demand and how does it differ?
• YOU NEED TO READ MODULES 5-9
Supply
You have to put on the hat of
business owner, think from that
perspective. What are all business
owners seeking?
Anything that interferes with that
will cause a change in what they
supply.
3
Supply Defined
What is supply?
Supply is the different quantities of a good that sellers
are willing and able to sell (produce) at different prices.
What is the Law of Supply?
There is a DIRECT (or positive) relationship between
price and quantity supplied.
•As price increases, the quantity producers make
increases
•As price falls, the quantity producers make falls.
Why? Because, at higher prices profit seeking
firms have an incentive to produce more.
4
QUICK REVIEW
How is that different from Demand?
What do you think will happen if the price of the item changes? Will it cause a movement up and down the
supply curve? Or a shift?
What do you think would happen if other factors change, other than price?
Will those cause a movement or a shift?
What are the shifters of demand: T
R
I
B
E
Turn to your shoulder partner and discuss for 1 min. Ideas you can come up with for why a business would
change how much supply there is. Be ready to share out.
5
• Bottom line- businesses are in it for profit and any changes
that change the profit will impact the amount they are
willing and able to supply.
6
6 Determinants (SHIFTERS) of Supply
1.
2.
3.
4.
Prices/Availability of inputs (resources)
Number of Sellers
Technology
Government Action: Taxes & Subsidies
Subsidies
A subsidy is a government payment that supports a business or market.
Subsidies cause the supply of a good to increase.
Taxes Cost of Alternative
Regulation
5. The
Opportunity
government can reduce the
Regulation occurs when the
supply
of some goods bylike
placing
an government
steps
into a market to
ProductionCoke
making
water
excise tax on them. An excise tax affect the price, quantity, or quality of
tax on the production orof
saleFuture
of
a good.
Regulation usually raises
6.is aExpectations
Profit
a good.
costs.
Changes in PRICE don’t shift the curve. It only
causes movement along the curve.
7
• Handout the Supply worksheet pages 21, 22 to practice in
class
8
Example of Supply
You own an lawn mower and you are
willing to mow lawns.
How many lawns will you mow at these prices?
Supply
Schedule
Price per
lawn mowed
Quantity
Supplied
$1
$5
$20
$50
$100
$1000
9
GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Draw this large
in your notes
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
10
GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
11
GRAPHING SUPPLY
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Cereal
Supply
$5
What if new
50
companies
start
making
40
cereal?
30
4
3
2
$3
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
12
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
13
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
14
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 70
$4
40 60
Price of Cereal
Supply
$5
4
3
2
$3
30 50
$2
20 40
1
$1
10 30
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
15
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 70
$4
40 60
Price of Cereal
Supply
4
3
2
$3
S2
$5
Increase in Supply
Prices didn’t change but
there is MORE cereal
produced
30 50
$2
20 40
1
$1
10 30
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
16
Change in Supply
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Cereal
Supply
$5
What if a drought
50
destroys
corn
and
wheat
40
crops?
30
4
3
2
$3
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
17
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
18
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Cereal
Supply
$5
4
3
2
$3
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
19
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 30
$4
40 20
Price of Cereal
Supply
$5
4
3
2
$3
30 10
$2
20 1
1
$1
10 0
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
20
Change in Supply
Supply
Schedule
Price
Quantity
Supplied
$5
50 30
$4
40 20
Price of Cereal
S2
$5
4
3
Decrease in Supply
Prices didn’t change but
there is LESS cereal
produced
2
$3
Supply
30 10
$2
20 1
1
$1
10 0
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
21
Change in Supply
Supply
Schedule
Price
$5
$4
$3
Quantity
Supplied
Price of Cereal
Supply
$5
4
What if cereal companies
50
3
find
a
quicker
way
to
make
40
2
cereal ?
30
$2
20
1
$1
10
o
10
20
30
40
50
60
70
Quantity of Cereal
80
Q
22
Quick Review-turn to your shoulder partner and
answer- find it in your notes and show them
1. Explain the Law of Demand
2. Explain the Law of Supply
3. Identify the 5 shifters of demand
4. Identify the 6 shifters of supply
5. Define Subsidy
6. Explain why price DOESN’T shift the
curve
7. Define Equilibrium
8. Define Shortage
9. Define Surplus
23
Tuesday- remember tomorrow is the Sr.
st
Meeting. Do not go to 1 , go straight to
auditorium. ZERO WE WILL MEET
• Objective: Be able to explain equilibrium and what happens when
equilibrium is changed.
• Be able to create a graph showing equilibrium, and then be able to
show shifts from changes to supply or demand or both
• Do Now: Go back over yesterday’s notes and create a question for
the information
• EQ: What drives the price of goods?
• Vocabulary is modules 5-9
24
Supply Practice
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
Hamburgers
1. Mad cow disease kills 20% of cows
2. Price of burgers increase 30%
3. Government taxes burger producers
4. Restaurants can produce burgers and/or
tacos. A demand increase causes the
price for tacos to increase 500%
5. New bun baking technology cuts
production time in half
6. Minimum wage increases to $10
25
Supply Practice
First, identify the determinant (shifter) then
decide if supply will increase or decrease
Shifter
Increase or
Decrease
Left or Right
1
2
3
4
5
6
26
Putting Supply and
Demand Together!!!
Create a Supply and Demand Curve from the schedule that follows on graph paper and then make the shifts
27
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P
Schedule $5
P Qd
Supply
Schedule
S
P Qs
4
$5 10
$5 50
3
$4 20
$3 30
$2 50
$1 80
$4 40
2
$3 30
1
o
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
28
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P
Schedule $5
P Qd
S
P Qs
4
$5 10
$5 50
Equilibrium Price = $3
(Qd=Qs)
$4 40
3
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
2
$3 30
1
o
D
10
20
30
40
50
60
70
Equilibrium Quantity is 30
80
Q
$2 20
$1 10
29
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P
Schedule $5
P Qd
3
$4 20
$2 50
$1 80
S
P Qs
4
$5 10
$3 30
Supply
Schedule
2
What if the price
increases to $4?
1
o
$5 50
$4 40
$3 30
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
30
At $4, there is disequilibrium. The quantity
demanded is less than quantity supplied.
Demand P
Schedule $5
P Qd
How much is the
surplus at $4?
Answer: 20
$4 20
$1 80
P Qs
4
3
$2 50
S
Surplus
(Qd<Qs)
$5 10
$3 30
Supply
Schedule
2
$4 40
$3 30
1
o
$5 50
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
31
How much is the surplus if the price is $5?
Demand P
Schedule $5
P Qd
3
$4 20
$2 50
$1 80
S
P Qs
4
$5 10
$3 30
Supply
Schedule
2
What if the Answer:
price 40
decreases to $2?
1
o
D
10
20
30
40
50
60
70
80
Q
$5 50
$4 40
$3 30
$2 20
$1 10
32
At $2, there is disequilibrium. The quantity
demanded is greater than quantity supplied.
Demand P
Schedule $5
P Qd
S
P Qs
4
How much is the
shortage at $2?
Answer: 30
$5 10
3
$4 20
$3 30
$2 50
$1 80
Supply
Schedule
2
o
10
20
30
40
$4 40
$3 30
Shortage
(Qd>Qs)
1
$5 50
D
50
60
70
80
Q
$2 20
$1 10
33
How much is the shortage if the price is $1?
Demand P
Schedule $5
P Qd
Supply
Schedule
S
P Qs
4
$5 10
Answer: 70
3
$4 20
$3 30
$2 50
$1 80
$5 50
$4 40
2
$3 30
1
o
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
34
The FREE MARKET system automatically
pushes the price toward equilibrium.
Demand P
Schedule $5
P Qd
Supply
Schedule
S
When there is a
surplus, producers P Qs
lower prices
$5 50
When there is a
shortage, producers $4 40
raise prices
$3 30
4
$5 10
3
$4 20
$3 30
$2 50
$1 80
2
1
o
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
35
We focus on keeping all things equal assumption, but like with the supply of cotton and the
demand increase due to increase in income there are times that both will shift, what then?
Shifting Supply and
Demand
36
Assume shifts in supply or demand change
equilibrium P and Q instantaneously
37
Supply and Demand Analysis
Easy as 1, 2, 3
1. Before the change:
• Draw supply and demand
• Label original equilibrium price and quantity
2. The change:
• Did it affect supply or demand first?
• Which determinant caused the shift?
• Draw increase or decrease
3. After change:
• Label new equilibrium?
• What happens to Price? (increase or decrease)
• What happens to Quantity? (increase or decrease)
Let’s Practice!
38
S&D Analysis Practice
1. Before Change (Draw equilibrium)
2. The Change (S or D, Identify Shifter)
3. After Change (Price and Quantity After)
Analyze Hamburgers
1. Price of sushi (a substitute) increases
2. New grilling technology cuts production
time in half
3. Price of burgers falls from $3 to $1.
4. Price for ground beef triples
5. Human fingers found in multiple burger
restaurants.
39
Double Shifts
• Suppose the demand for sports cars fell at the
same time as production technology improved.
• Use S&D Analysis to show what will happen to
PRICE and QUANTITY.
If TWO curves shift at the same
time, EITHER price or quantity
will be indeterminate.
40
Use a S&D to explain this double shift
41
Wednesday
• Objective: Be able to
demonstrate that you can define
and recognize terms used so far
in this unit, be able to create
different graphs and show
movement or shifts, be able to
read and answer questions over
supply and demand show your
work.
• Verbalize with your group to
complete the task at each
station.
• Do Now: Record in your
planner and notes. Then read
over your notes on Supply and
Demand. Annotate and
Summarize
• EQ: How do I read the
questions to understand what
they are asking? How do I
apply the different knowledge
to different applications? Can I
create PPC, S & D graphs?
42
Today
• You and your group of 2-4 will go to different labs and
complete the task at each lab.
• You will all participate and make sure that everyone
understands.
• Answer the questions or complete the task and then you will
need to move on.
• There are 4 different stations. Approx. 10 min. per station
–
–
–
–
Life Size graphingVocabulary practice
Vocabulary search
Supply and Demand Changes
43
Wednesday in Closing
•
•
•
•
•
What was your biggest challenge?
Did you figure it out? Get it answered?
Do you now understand?
Where do you feel the most confident?
If you have a shift in both supply and demand will the price
and quantity both be able to be determined?
44
Thursday
• Objective: Be able to explain what a price ceiling and a
price floor is?
• Be able to write what happens when they are created.
• Do Now: Visit with your shoulder partner on what a
complement and substitute are and how they impact
demand?
• EQ: What is created with a floor and a ceiling and who
benefits from them? What are quantity controls?
45
Government
Involvement
#1-Price Controls: Floors and Ceilings
#2-Import Quotas
#3-Subsidies
#4-Excise Taxes
46
#1-PRICE CONTROLS
Who likes the idea of having a price ceiling on
gas so prices will never go over $1 per gallon?
47
Price Ceiling
Maximum legal price a seller can charge for a product.
Goal: Make affordable by keeping price from reaching Eq.
P
Gasoline
S
$5
Does this
4
policy help
consumers?
3
Result:
BLACK
Price
MARKETS 2
Ceiling
Shortage
1
(Qd>Qs)
D
To have an effect,
a price ceiling must be
below equilibrium
o
10
20
30
40
50
60
70
80
Q
48
Price Floor
Minimum legal price a seller can sell a product.
Goal: Keep price high by keeping price from falling to Eq.
P
Corn
S
$
Surplus
(Qd<Qs)
To have an effect,
Price Floor
a price floor must be
Does this above equilibrium
4
3
policy help
corn
producers?
2
1
o
D
10
20
30
40
50
60
70
80
Q
49
Practice Questions
1. Which of the following will occur if a legal price floor is
placed on a good below its free market equilibrium?
A. Surpluses will develop
B. Shortages will develop
C. Underground markets will develop
D. The equilibrium price will remain the same
E. The quantity sold will increase
2. Which of the following statements about price control is true?
A. A price ceiling causes a shortage if the ceiling price is
above the equilibrium price
B. A price floor causes a surplus if the price floor is below
the equilibrium price
C. Price ceilings and price floors result in a misallocation of
resources
D. Price floors above equilibrium cause a shortage
50
Are Price Controls Good or Bad?
To be “efficient” a market must maximize
consumers and producers surplus
P
S
CS
Pc
PS
D
Qe
51
Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and
producers surplus
P
S
Price
FLOOR
Pc
CS
DEADWEIGHT LOSS
The Lost CS and PS.
PS
INEFFICIENT!
D
Qfloor Qe
52
Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and
producers surplus
P
S
CS
Pc
PS
D
Qe
53
Are Price Controls Good or Bad?
To be “efficient” a market must maximize consumers and
producers surplus
P
S
Pc
DEADWEIGHT LOSS
The Lost CS and PS.
CS
INEFFICIENT!
Price
CEILING
PS
D
Qceiling Qe
54
#2 Import Quotas
A quota is a limit on number of imports.
The government sets the maximum amount that
can come in the country.
Purpose:
•To protect domestic producers from a
cheaper world price.
•To prevent domestic unemployment
55
International Trade and Quotas
Identify the following:
1. CS with no trade
2. PS with no trade
3. CS if we trade at
world price (PW)
4. PS if we trade at
world price (PW)
5. Amount we import at
world price (PW)
6. If the government sets
This graphs show the domestic
a quota on imports of
supply and demand for grain.
Q4 - Q2, what happens
The letters represent area.
to CS and PS?
#3 Subsidies
The government just gives producers money.
The goal is for them to make more of the goods
that the government thinks are important.
Ex:
•Agriculture (to prevent famine)
•Pharmaceutical Companies
•Environmentally Safe Vehicles
•FAFSA
58
Result of Subsidies to Corn Producers
Price of Corn
S
SSubsidy
Price Down
Quantity Up
Everyone
Wins, Right?
Pe
P1
D
o
Qe Q1
Q
Quantity of Corn
59
60
#4 Excise Taxes
Excise Tax = A per unit tax on producers
For every unit made, the producer must pay $
NOT a Lump Sum (one time only)Tax
The goal is for them to make less of the goods that
the government deems dangerous or unwanted.
Ex:
•Cigarettes “sin tax”
•Alcohol “sin tax”
•Tariffs on imported goods
•Environmentally Unsafe Products
•Etc.
61
Excise Taxes
Supply
Schedule
P
Qs
$5
140
$4
120
Government sets a $2 per
unit
tax
on
Cigarettes
P
S
$5
4
3
$3
100
$2
80
$1
60
2
1
o
D
40
60
80
100
120
140
Q
62
Excise Taxes
Supply
Schedule
P
Qs
$5 $7
140
$4 $6
120
Government sets a $2 per
unit
tax
on
Cigarettes
P
S
$5
4
3
$3 $5
100
$2 $4
80
$1 $3
60
2
1
o
D
40
60
80
100
120
140
Q
63
Excise Taxes
Supply
Schedule
P
Qs
$5 $7
140
$4 $6
120
P
S
$5
4
Tax is the vertical
distance between
supply curves
3
$3 $5
100
$2 $4
80
$1 $3
60
STax
2
1
o
D
40
60
80
100
120
140
Q
64
Thursday in closing
• Objective: Be able to explain what a price ceiling and a
price floor is?
• Be able to write what happens when they are created.
• Do Now: Visit with your shoulder partner on what a
complement and substitute are and how they impact
demand?
• EQ: What is created with a floor and a ceiling and who
benefits from them? What are quantity controls?
65
Friday
• Objective: Be able to demonstrate a knowledge of supply and
demand and how to shift them. Be able to explain what happens
to the price and quantity.
• Be able to communicate in your group so that everyone
understands how to draw the graphs and answer the questions.
• Do Now: Go back over your notes from yesterday and prior
days. Highlight and summarize.
• EQ: How does supply and demand work on graphs? What does
it do to prices and quantities?
66
• In small groups of 2-4 complete the practice work sheets.
Work together to answer them and turn your completed
sheets in as a group.
• Everyone needs to complete the sheets.
67