Microeconomics: Supply and Demand

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Presentation transcript:

Microeconomics: Supply and Demand 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) $3 2 1 0 10 20 30 40 Q P a b D1

Relatively Inelastic Demand Total Revenue (TR) TR = P x Q Inelastic Demand (lower prices = lower total revenue, higher prices = higher total revenue, direct relationship) $4 3 2 1 0 10 20 Q P c d D2

Elasticity of Demand https://www.youtube.com/watch?v=HHcblIxiAAk 6:12

Unit Elasticity Total Revenue (TR) TR = P x Q Unit-Elastic (changes in price do not change total revenue) $3 2 1 0 10 20 30 Q P e f D3

Price Elasticity of Demand Extreme Cases Perfectly Inelastic Demand P Q D1 Perfectly Inelastic Demand (Ed = 0) Perfectly Elastic Demand P Q D2 Perfectly Elastic Demand (Ed = ∞)

Demand and Supply https://www.youtube.com/watch?v=RP0j3Lnlazs 7:02

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=ewPNugIqCUM 4:54

Supply Curve Definition: a graph showing the various combinations of prices and quantities supplied

Supply Curve https://www.youtube.com/watch?v=nKvrbOq1OfI 2:54

Supply Schedule Definition: table/chart listing the quantities that will be produced at each price

Supply Schedule https://www.youtube.com/watch?v=kidjNiZpT8Y 1:11

Individual Supply Individual Supply P Qs $5 4 3 2 1 60 50 35 20 5 P S1 Individual Supply S1 P Qs $5 4 3 2 1 60 50 35 20 5 Price (per bushel) 10 20 30 40 50 60 70 Q Quantity Supplied (bushels per week)

Determinants of Supply 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 Individual Supply P 6 5 4 3 2 1 S3 Individual Supply S1 S2 P Qs $5 4 3 2 1 60 50 35 20 5 Price (per bushel) 2 4 6 8 10 12 14 Q Quantity Supplied (bushels per week)

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.