Download What causes changes in SUPPLY?

Which of the following can cause
the Production Possibilities
Frontier to shift out?
1. New technology
2. Increase in resources
3. Trade with other nations
4. All of the above
5. Only 1 and 2 above
The law of comparative advantage implies
that a nation, individual or region should
produce those things for which it is a _____
opportunity cost producer and trade for
those things for which it is a _____
opportunity cost producer.
1. Low, high
2. High, low
The law of comparative
advantage suggests that
1. Curtailing U.S. trade with other nations
2.
3.
4.
5.
would make U.S. consumers worse off.
Everyone would be better off if they were
self-sufficient.
Countries will tend to export
commodities for which they are low
opportunity cost producers.
All of the above are correct.
Only 1 and 3 are correct.
Put letters A, B, C in correct order
to correspond with blanks.
• Height of Supply Curve
• A change in price will change
• Elasticity
A. Quantity supplied
B. Degree of responsiveness
C. Marginal Cost
___
___
___
Chapter 3 – Supply & Demand
• Demand – a schedule of all the various
quantities of a good or service that
consumers are willing and able to buy, at
various prices and at a specified time,
place and population.
Chapter 3 — Demand & Supply
• Law of Demand — there is an inverse
relationship between price and quantity
demanded of a good or service.
Why? Substitutes
Is there a good substitute for gasoline?
Insulin to a diabetic?
Chapter 3 — Demand & Supply
•
•
•
•
•
•
Law of Demand
Demand Schedule
Demand Graph
Height of Demand Curve =
Marginal Benefit or Marginal
Utility
Consumer Surplus
Elasticity of Demand
Demand curves are downward
sloping because of:
1. Complementary goods
2. Excess supply
3. Substitution
4. The inverse relationship between
income and consumption.
Change in D v. Change in Qd
• Change in Qd —
Caused by a change in price
• Change in D — Caused by a change in
anything BUT price
What are some of those “Anythings?”
•Income
•Number of Buyers in the market
•Price of RELATED Products
•Expectations—Johnny Carson (bathroom tissue)
•Tastes & Preferences of consumers
3.1: Draw 2 demand graphs,
completely labeled.
On the left graph, show a change in
quantity demanded. On the right
graph, show a change in Demand.
Somewhere on the front of the card,
write the ONE word answer to “What
changes quantity demanded?” Circle
that word.
LABEL COMPLETELY, all axes, curves,
shifts, arrows, etc.
(PMA) Ceteris Paribus, an increase
in the price of a good will cause
the:
1. Demand of the good to decrease
2. Demand of the good to increase
3. Quantity demanded to increase
4. Quantity demanded to decrease
Consumers’ surplus is
1. The difference between what a producer HAS to pay for
2.
3.
4.
resources and what he wants to pay.
The difference between what the consumer wants to pay
for a good and what the producer wants him to pay.
The difference between the producer’s cost and the
market price.
The difference between what the consumer is WILLING &
ABLE to pay and what he actually has to pay given the
market price.
Demand curves are downward
sloping because of:
1. Complementary goods
2. Excess supply
3. Substitution
4. The inverse relationship between
income and consumption.
Excess supply is just:
1. Another name for a surplus.
2. Another name for a shortage.
3. Producers being willing to sell more than
they are able to sell.
4. The same as market equilibrium.
PMA—Choose the BEST answer…..
To maximize income, countries should
import goods for which
1. They are the High opportunity cost
producer
2. They are the Low opportunity cost
producer
3. They have a comparative advantage in
4. They have the absolute advantage in
What is Supply?
Supply – a schedule of all the various
quantities of a good or service that a
producer is willing and able to sell at
various prices and at a specified time,
place and population.
Chapter 3
con’t
— Demand & Supply
• Law of Supply — there is a positive
relationship between price and quantity
supplied
• WHY? PPC…..as you produce more
COTTON, you give up more and more in
terms of corn, at the margin. Let’s call
that a supply curve.
Chapter 3
con’t
— Demand & Supply
• Law of Supply
• Supply Schedule
• Height of Supply Curve = OC at the
margin OR Marginal Cost
• Producer Surplus
• Elasticity of Supply
Class work 3.2:
On ONE graph, draw two demand
curves: One for a product that has few
good substitutes and one for a product
that has MANY good substitutes,
ceteris paribus. Make sure you explain
which is which…
Change in Supply v. change in Qs
Change in Qs
V. Change in Supply –
(along the curve)
(of the curve)
What causes changes in SUPPLY?
Anything but price……for example:
• Changes in Technology
• Number of sellers in the market
• Expectation of sellers as to price, change in
consumption
• Natural Disasters
• Tax Policy
--How S & D interact
--What determines where price
will be in a competitive market,
in the ABSENCE of Government
intervention?
--Shortages and Surpluses
Video—excess supply of Buzz Lightyear
And sometimes….even the
professionals get it wrong……
Article from Rock Times, Nov. 1974
Index card: 3.2
If there is a SHORTAGE of something and
we don’t allow price to change, how can we
get rid of the surplus?
If there is a SURPLUS, and we don’t allow
price to change, how do we get rid of the
surplus?
Video – Sometimes, even with grave
shortages, government will not allow price to
change. What is the result?
Invisible Hand of Competition
• Pricing causes NATURAL order (not central
planning) ex. Lines at McDonalds, toll booths
• Pricing gives information – higher price
signals change in the market-Tsunami &
price of bananas, price of plywood after
hurricane
• Invisible Hand
• What determines Price … is it supply or
demand? Alfred Marshall
3.3: Draw a graph that shows:
What you would expect to happen to the
market price and quantity of strawberries after
a tornado rips through “strawberry country,”
central Florida.
3.3: Draw a graph that shows:
What you would expect to happen to the
market price and quantity of strawberries after
a tornado rips through “strawberry country,”
central Florida.
S & D graph, labeled correctly
(axes, curves, arrows, etc.).
Show market p & q BEFORE the
tornado and then again AFTER
the tornado.
Class Work 3.4
Hurricane Katrina hit the Louisiana
coast pretty hard, wiping out homes
and businesses such as Home Depot
and Lowe’s. How would you expect
the hurricane to affect the market
price and quantity of lumber, ceteris
paribus?
Draw a graph for your answer.
End of Chapter 3