Which of the following can cause the Production Possibilities Frontier to shift out? New technology Increase in resources Trade with other nations All of the above Only 1 and 2 above 1

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. Low, high High, low

The law of comparative advantage suggests that Curtailing U.S. trade with other nations 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. 3

Put letters A, B, C in correct order to correspond with blanks. Height of Supply Curve ___ A change in price will change ___ Elasticity ___ Quantity supplied Degree of responsiveness Marginal Cost 4

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? 6

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: Complementary goods Excess supply Substitution The inverse relationship between income and consumption.

Change in D v. 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: Demand of the good to decrease Demand of the good to increase Quantity demanded to increase Quantity demanded to decrease

Consumers’ surplus is The difference between what a producer HAS to pay for 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. 12

Demand curves are downward sloping because of: Complementary goods Excess supply Substitution The inverse relationship between income and consumption.

Excess supply is just: Another name for a surplus. Another name for a shortage. Producers being willing to sell more than they are able to sell. The same as market equilibrium. 14

They are the High opportunity cost producer PMA—Choose the BEST answer….. To maximize income, countries should import goods for which They are the High opportunity cost producer They are the Low opportunity cost producer They have a comparative advantage in 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. 17

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 20

--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. 27

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. 29

End of Chapter 3