Warm-up What is Demand? List 4 factors that can change demand? What type of economy does the US have? Describe a command economy. What is a mixed economy?

What is Supply?

Supply Supply is the amount of goods or services available The Law of Supply states the higher the price, the larger the quantity produced (think like a producer now; at a higher price firms earn additional revenue and others will have more incentive to enter the market) P S P S

y-axis = price x-axis = quantity supplied Supply continued… Supply Schedule- show only how price of goods changes the quantity supplied (all other factors remain constant) Supply Curve- Graphic representation of the supply schedule. (rises from left to right) y-axis = price x-axis = quantity supplied

Supply Schedule and Curve EXAMPLE

Supply Schedule and Curve Practice Supply Schedule For pizzas   $.50 100 $1.00 150 $1.50 200 $2.00 250 $2.50 300 $3.00 350

Supply Schedule and Curve Practice Supply Schedule For pizzas   $.50 100 $1.00 150 $1.50 200 $2.00 250 $2.50 300 $3.00 350

Elastic Supply Elasticity of Supply is a measure of the way suppliers respond to a change in price Elastic Supply- a small increase in price has a big effect on supply

Inelastic Supply Inelastic Supply- a small increase in price has a small effect on supply Example- orange farmers must plant more trees every 2 years to produce more fruit but supply doesn’t change in the short term

WHY WOULD THERE BE A SHIFT (change) IN SUPPLY? Change in the Price of an Input- Rise in input cost means decrease in supply because it is too expensive to make and a fall in input cost will increase supply Technology- lowers cost and increases supply Government subsidy- payment by the gov’t that supports a business or market; Subsidies increase supply

WHY WOULD THERE BE A SHIFT (change) IN SUPPLY? Increase or Decrease in taxes- increasing taxes decreases supply; decreasing taxes increases supply Government Regulation- Usually increases cost of production and decreases supply emission control on cars, FDA nutritional codes on food products Future expectation of Prices- expect the price to go up the supplier will store goods to sell more in future Number of suppliers- as more suppliers enter a market to produce a good the market supply of the good will rise and less suppliers in the market the good will drop

Supply and Demand Together

Review of Supply and Demand Demand- the desire to own something and the ability to pay for it The Law of Demand- P D P D Supply- the amount of goods or services available The Law of Supply- P S P S

Supply and Demand Together

Equilibrium Equilibrium- the point at which quantity demanded and quantity supplied are equal At a point of equilibrium- the price and quantity are balanced the market for a good/service is stable

Complete the Practice Graph on your sheet!

Supply and Demand Together   Price of CD’s Quantity Demanded Quantity Supplied $5.00 100 10 $10.00 80 20 $15.00 30 $20.00 $25.00

Disequilibrium Disequilibrium- any price or quantity not at equilibrium Shortage- (AKA Excess Demand) when quantity demanded is more than quantity supplied

Disequilibrium continued… Surplus- (AKA Excess Supply) when quantity supplied is more than quantity demanded

Shifting Supply and Demand A shift in the demand curve or the supply curve will result in a new equilibrium price

Price Controls Price Ceiling- a maximum price that can be legally charged for a good or service example: rent control Price Floor- a minimum price for a good or service example: minimum wage

Inflation and Deflation Inflation- a general increase in prices (over the years, prices rise and fall, but in the American economy, they have mostly risen) Deflation- A substantial drop in the prices