Download Chapter 5 Notes - Mr. newcomb`s class website

Unit 1: Basic
Economic Concepts
1
Supply
Copyright
ACDC Leadership 2015
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.
Copyright
ACDC Leadership 2015
EXAMPLE: Mowing Lawns
3
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
Copyright
ACDC Leadership 2015
Price per
lawn mowed
Quantity
Supplied
$1
$5
$20
$50
$100
$1000
4
GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Milk
Draw this large
in your notes
$5
4
3
2
$3
30
$2
20
$1
10
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
5
GRAPHING SUPPLY
Supply
Schedule
Price
Quantity
Supplied
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
6
GRAPHING SUPPLY
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Milk
Supply
$5
4
What if there are new
50
3
and
more
productive
40
2
$3
30 milking
$2
20
$1
10
Copyright
ACDC Leadership 2015
machines?
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
7
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
8
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
9
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 70
$4
40 60
Price of Milk
Supply
$5
4
3
2
$3
30 50
$2
20 40
$1
10 30
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
10
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 70
$4
40 60
Price of Milk
Supply
4
3
2
$3
Increase in Supply
Prices didn’t change but
there is MORE milk
produced
30 50
$2
20 40
$1
10 30
Copyright
ACDC Leadership 2015
S2
$5
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
11
Change in Supply
Supply
Schedule
Price
$5
$4
Quantity
Supplied
Price of Milk
Supply
$5
What if the price for
50
dairy
cows
increases
40
drastically?
30
4
3
2
$3
$2
20
$1
10
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
12
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
13
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50
$4
40
Price of Milk
Supply
$5
4
3
2
$3
30
$2
20
$1
10
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
14
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 30
$4
40 20
Price of Milk
Supply
$5
4
3
2
$3
30 10
$2
20 1
$1
10 0
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
15
Change in Supply
Supply
Schedule
Quantity
Supplied
Price
$5
50 30
$4
40 20
Price of Milk
Supply
S2
$5
4
3
Decrease in Supply
Prices didn’t change but
there is LESS milk
produced
2
$3
30 10
$2
20 1
$1
10 0
Copyright
ACDC Leadership 2015
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
16
Change in Supply
Supply
Schedule
Price
$5
$4
$3
Quantity
Supplied
Supply
$5
4
What if there is a
50
3
increase
in
the
number
40
2
of
milk
producers?
30
$2
20
$1
10
Copyright
ACDC Leadership 2015
Price of Milk
1
10
20
30
40
50
60
Quantity of Milk
70
80
Q
17
Review
1. Explain the Law of Demand
2. Explain the Law of Supply
3. What motivates entrepreneurs in a market
economy?
4. How does the desire for profit increase
supply?
5. What is the relationship between price and
quantity demanded?
6. What is the relationship between price and
quantity supplied?
7. How does the slope of a supply curve differ
from the slope of a demand curve?
8. Best Halloween costume you saw yesterday?
Copyright
ACDC Leadership 2015
18
5 Shifters (Determinants) 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
Regulation
5. The
Expectations
of
Future
Profit
government can reduce the
Regulation occurs when the
supply of somein
goods
by placing
an government
into a market
to
Changes
PRICE
don’t
shift thesteps
curve.
It only
excise tax on them. An excise tax affect the price, quantity, or quality of
causes
movement
along
the curve.
is a tax on the
production
or sale of
a good.
Regulation
usually raises
a good.
Copyright
ACDC Leadership 2015
costs.
19
Practice Questions
1. Which of the following will cause the
quantity supplied for milk to decrease?
A. Decrease in the price of a key resource
B. A decrease in the number of milk
producers
C. A decrease in the price of milk
D. An increase in the price of milk
E. A subsidy for milk producers
Copyright
ACDC Leadership 2015
20
Supply Practice
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
Copyright
ACDC Leadership 2015
21
Supply Practice
1. Which determinant (SHIFTER)?
2. Increase or decrease?
3. Which direction will curve shift?
Analyze Hamburgers
1. Strange virus kills 20% of cows
2. Price of hamburgers increase 30%
3. Government taxes burger producers
4. New bun baking technology cuts
production time in half
5. The government subsidizes dairy
farmers
6. Minimum wage increases to $20
Copyright
ACDC Leadership 2015
22
Putting Supply and
Demand Together!!!
Copyright
ACDC Leadership 2015
23
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
Copyright
ACDC Leadership 2015
$4 40
2
$3 30
1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
24
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
Copyright
ACDC Leadership 2015
Supply
Schedule
2
$3 30
1
D
10
20
30
40
50
60
70
Equilibrium Quantity is 30
80
Q
$2 20
$1 10
25
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
Copyright
ACDC Leadership 2015
S
P Qs
4
$5 10
$3 30
Supply
Schedule
2
What if the price
increases to $4?
1
$5 50
$4 40
$3 30
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
26
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
Copyright
ACDC Leadership 2015
P Qs
4
3
$2 50
S
Surplus
(Qd<Qs)
$5 10
$3 30
Supply
Schedule
2
$5 50
$4 40
$3 30
1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
27
How much is the surplus if the price is $5?
Demand P
Schedule $5
P Qd
3
$4 20
$2 50
$1 80
Copyright
ACDC Leadership 2015
S
P Qs
4
$5 10
$3 30
Supply
Schedule
2
What if the Answer:
price 40
decreases to $2?
1
D
10
20
30
40
50
60
70
80
Q
$5 50
$4 40
$3 30
$2 20
$1 10
28
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
Copyright
ACDC Leadership 2015
Supply
Schedule
2
10
20
30
40
$4 40
$3 30
Shortage
(Qd>Qs)
1
$5 50
D
50
60
70
80
Q
$2 20
$1 10
29
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
Copyright
ACDC Leadership 2015
$5 50
$4 40
2
$3 30
1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
30
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
Copyright
ACDC Leadership 2015
2
1
D
10
20
30
40
50
60
70
80
Q
$2 20
$1 10
31
Review
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
10.Identify 10 stores in the mall
Copyright
ACDC Leadership 2015
32
2008 Audit Exam