Supply Chapter 5

How many hours do you spend studying every night How many hours do you spend studying every night? How many hours would you study if you were paid $1 an hour? $10 hour?

Supply Quantities that would be offered for sale at all possible prices that could prevail in the market. Meaning, produce the number believed to be sold at those prices… Supply Curve

Law of Supply Quantity supplied, or offered for sale, varies directly with its price. High price = high supply Low price= low supply Why?

Change in Quantity Supplied Change in amount offered for sale in response to change in price Moves on same curve

Change in Supply Different amounts offered for sale at all possible prices Shifts to new curves

Change in Supply Cost of Inputs Productivity Technology Costs more or less to make affects supply Productivity better workers= more supply Technology Better technology=better supply Number of Sellers More suppliers more supply Taxes and Subsidies Affects cost of production and therefore affects supply Expectations If possible price hike, they may hold supply to sell at higher price Gov’t Regs More regs affects cost of production therefore affects supply

Practice Example: Productivity Ms. Power has decided to bake cookies for all her students if they complete all of their homework. She expects to see an increase in supply of HW. Create a scenario for each of the 7 reasons for Change in Supply. Write the scenario, state the REASON and then show a general graph showing the supply curve shift. Be sure to label your curves S1 and S2.

Supply Elasticity Tells the way in which changes in the quantity supplied are affected by changes in price Elastic Supply Change in price causes large change in supply Inelastic Supply Change in price little change in supply

Supply Elasticity Change in price, large change in QS

Supply Inelasticity Change in price causes small change in quantity supplied

Supply Elastic v. Inelastic

Determinants of Supply Elasticity Supply elasticity depends on the nature of production Short run production = inelastic Difficult to produce, large amount of capital, can only supply so much Long run production = elastic Easy production, much supply can be made available

Determinants of Supply Elasticity

Practice Determine if the following products are supply Elastic or Inelastic then draw what the curve would look like. Crayons Uranium Jelly bracelets Nuclear power plant

Demand v. Supply Elasticity Little difference – Concept the same Demand elasticity is if purchased Supply elasticity is if produced

Homework Find a newspaper headline that depicts a reason for there to be a change in supply. Explain what REASON is depicted then show how it would shift the curve on a general supply curve graph. Pg 124 Reviewing Facts #s 1-4,

How Prices are Determined Chapter 6

Have you ever sold something to a friend? Perhaps you wanted to sell at one price and your friend wanted to buy at another. After some compromise, you probably agreed on a price, and the exchange took place. Your price was an EQUILIBRIUM PRICE, or one that clears the market.

What is market equilibrium?

Demand/Supply Schedule Price QD QS Surplus/Shortage $10 200 1600 8 400 1200 6 800 4 2 DETERMINE THE SUPLUS OR SHORTAGE FOR EACH AMOUNT AT EACH PRICE. GRAPH BOTH THE QD AND QS ON THE SAME GRAPH. LABEL EVERYTHING AND MARK THE EQUILBRIUM PRICE.

Demand/Supply Schedule Price QD QS Surplus/Shortage $10 200 1600 + 1400 8 400 1200 + 800 6 800 0 = EQUILIBRIUM 4 - 800 2 - 1400 DETERMINE THE SUPLUS OR SHORTAGE FOR EACH AMOUNT AT EACH PRICE. GRAPH BOTH THE QD AND QS ON THE SAME GRAPH. LABEL EVERYTHING AND MARK THE EQUILBRIUM PRICE.

rice

Price Ceiling Price Ceiling: maximum legal price that can be charged Goal is to cap prices to keep items affordable and in demand In order for a price ceiling to be effective it must be set below the equilibrium price. Why?

Price Ceiling Example In order to protect renters from climbing rental costs, some cities create price ceilings on rent. So while suppliers may want rent to be $1500 the city controls it at $1100. At this price, it is low enough to raise demand but high enough to generate supply

Price Floor Lowest legal price that can be paid for a good or service Goal is to keep prices higher to ensure production For a price floor to be effective it must be above the equilibrium price. Why?

Price Floor Example Minimum wage Government sets the lowest wage an employer can pay. This results in employers hiring less workers (increase in costs of input) but also creates a surplus of workers in the market increasing the demand for better workers. While it may slightly increase unemployment it improves the overall work force.

Review Page 148 – Reviewing Key Terms #s 1-5 - Reviewing the Facts # 4 and 6

Economic Model Project Construct an economic model by following these steps: 1. Select a product and list the kinds of inputs and their costs required in the producer’s manufacturing. (hypotheticals) 2. Construct a hypothetical supply curve for the product 3. Determine the demand elasticity for the product: Does it have many substitutes? Can its purchase be postponed? Does it consume much income? 4. Construct a demand curve and combine with a supply curve in a single graph. This is your economic model. 5. Finally, make reasonable predictions about the future price of your product.