Supply The amount of a good service that producers are willing and able to offer for sale at each possible price during a given period of time

Law of supply As the price of a good or service rises (or falls, the quantity of that good or service also rises (or falls) Direct relationship P ^ Q ^ P Q

https://www.youtube.com/watch?v=ewPNugIqCUM&t=150s

Supply Notes! http://www.youtube.com/watch?v=6Q_XxwqtwxY Jigsaw reading: “Breakfast costing us more” 1- first section 2- bacon 3- coffee 4- orange juice Share with group – complete the questions

Profit Supply is affected by profit potential. Profit = Total revenue – Total cost

Supply Notes Supply schedule: Supply curve: Listing of quantities at all prices Supply curve: Graph version of schedule

Supply notes Factors that affect the shift of the curve Cost of production decreases/increases – when prices increase the desire to make a profit encourages producers to increase production Technology improvements Seller expectations Competition Opportunities in different markets (good/bad)

Factors continued Natural events (ex. Good crop year/ much supply) Government (taxes, regulations, and subsidies) PRICE MOVES ALONG THE SLOPE OF THE CURVE

Practice graphing Graph original market supply

Question? Why are there differences in prices? Why are some prices low, some middle, and some higher? Could it be that because of the different incomes?

Price- the amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service. Incentive- any reward or benefit, such as money, advantage, or good feeling that motivates people to do something.

Definitions Write what you believe the definitions of each pricing factor is on your handout.

Pricing signals Prices send signals to a buyer (similar to the signals that a traffic light sends to a driver) Green light – BUY Yellow light – caution Red light – do not buy Some prices lead a consumer to make a purchase. Some prices make a consumer stop and think about a purchase. Some prices make consumers stop their purchasing decision process.

Terms and definitions Competitive pricing- setting the price of a product or service based on what the competition is charging Expenses – payments for goods and services Revenue- the money a business receives from customers who buy its goods and services. Not to be confused with profit.

Cont. Profit- income received for entrepreneurial skills and risk taking, calculated by subtracting all of a firm’s explicit and implicit costs from its total revenues.

Question: What is the incentive for sellers when pricing goods? Profit Increasing sales Developing customer loyalty

worksheet Match the Chevrolet model to the estimated retail price Compare the price of the Chevrolet Camaro to the convertible model. What do you think the differences are between the two Camaro vehicle models that led to a $40,000 difference in price?

Question? What are some incentives for a person choosing to purchase a luxury vehicle? Improved social status Attention to the driver High performance vehicle Moving you from point A to point B faster Increased safety The interior

Think of a product that you might purchase…… Dallas Cowboy tickets What would be your purchase price (green light) What would be your caution price (yellow light) What would be the price you are not willing to pay (red light)

It is difficult for businesses to price their products. Profit margin – the difference between the selling price and the costs to make the sale. This is the way a business makes money and survives Significant role because profit drives growth. Have to take into account competitor’s prices and signals that your prices will send customers.

Buyer incentives Give me a show of hands if you would be willing to purchase the following items at these price points: Coke: $.50 Movie tickets: $1.00 Tropical vacation: $25.00 Car: $100.00

Cont. Now, what if the prices increased? Coke: $3.00 Movie tickets: $13.00 Tropical vacation: $1,000 Car: $ 25,000 Look at the change of interest when the price increases.

Incentives for businesses and consumers Find four different hotels to stay in Los Angeles, California for a given night using the price points below Use any travel website (Orbitz, Travelocity) Less than $99.99 per night (not including taxes) $100. to $199 per night (not including taxes) $200 to $299 per night $300 or more per night For each hotel identify at least 3 incentives for both the business and the consumer for that price and particular night.

How are prices determined? The interaction of consumers and producers. The interaction of supply and demand.

Remember! There is an indirect relationship between price and quantity demanded with a demand curve. (downward slope) A supply curve shows a direct relationship between price and quantity supplied. (upward slope)

Questions: Is it supply or demand that determines price? They both do What is the point where the supply curve and the demand curve intersect called? Market equilibrium What does equilibrium mean? Balance, stability

Questions cont. What does this point represent? The market clearing or equilibrium price. The price at which the quantity supplied equals the quantity demanded.

When the quantity supplied is greater than the quantity demanded, there is a surplus. If the quantity demanded exceeds the quantity supplied, there is a shortage. What do you think will happen that will move the market toward equilibrium, eliminate surplus. To sell more of the product, producers will reduce the price. At the lower price consumers will be willing and able to buy more. This process will continue until the market clears…..reaches equilibrium.