Pop Quiz- answer these questions on a sheet of paper 1. What is demand? What is the Law of Demand? 2. What effect does price have on the demand curve? 3. What are the 4 determinants that can shift the demand curve left or right? 4. Draw a graph, showing the demand for McDonalds in Tucson after Burger King doubles their prices. 5. Draw a graph, showing the demand for “pink slime” ground beef after the media exposed that it was cow parts treated with chemicals. Desire to own something and the ability/willingness to pay for it; everything being equal, more of an item will be demanded at a lower price and vice versa Price does not shift the curve; built into the line. Lower price lead to increase in demand Number of consumers, consumer tastes, change in income; change in price of other goods Demand for Mc Donald's increase Demand for pink slime ground beef decrease.

Supply and Demand

What is Supply? Imagine that you own a factory that produces Sunglasses. The price of sunglasses begins to rise quickly. What would you do… Produce more sunglasses Produce less sunglasses Produce the same number of sunglasses Explain why.

What is Supply? Supply: the willingness and ability to supply a good or service to the market

Who controls Supply? Businesses Individuals

How do they control Supply? By utilizing the 4 factors of production to produce a good or service Factors: Land, labor, capital (we assume the risk is already taken)

The Law of Supply “Everything being equal, more of a good will be supplied at a higher price, and vice versa” -Graph iPhone example -Develops from choices of current and new producers. As price of good rises, existing firms will produce more to make more revenue. New firms will also enter the market to earn a profit. -If price falls, some firms might produce less, and others might drop out of the market.

The Supply Curve Slope: Quantity Relation to Price: Graphic representation of supply schedule. Slope: upward and to the right (positive slope) As price increases, quantity increases and vice versa. Direct relationship between price and quantity.

When price changes, the amount (quantity) supplied also changes. •What happens when the price of an iPhone changes from $400 to $200 (move along the supply curve to find the new price/quantity location)? •ONLY PRICE CAN CHANGE/AFFECT QUANTITY SUPPLIED CHANGES

The Supply Curve can be shifted due to one of several things changing. Remember, “everything being equal” changes over time! Increase in Supply= shift right Decrease in supply= shift left

Supply Curve Shifts Number of Sellers OR If more suppliers enter a market to produce a certain good, the market supply of the good will rise and the supply curve will shift to the right. If suppliers stop producing the good and leave the market, supply will decline. Positive relationship between # of suppliers and supply.

Supply Curve Shifts 2. Cost of inputs OR 2.. Any change in cost of input used to produce a good (such as raw materials, machinery or labor) will affect supply. Rise in cost of input will cause a fall in supply at all price levels because the good has become more expensive to produce. (shift left) A fall in the cost of input will cause an increase in supply at all price levels. (shift right)

Supply Curve Shifts 3. Technology: short run vs. long run 3. Technology lowers costs and increases supply at all price levels. This effect is seen if a rightward shift in the supply curve. EX. Advances in tech. can lowers production costs (robots instead of assembly line; computers; email) •Generally, technology will cause a DECREASE in supply in the short run (business has to adapt, and just invested capital in tech. and not inputs), while later INCREASING supply in the long run when the technology is finally paying off and the business can invest more capital in input costs.

Supply Curve Shifts 4. Productivity OR 4. Productivity of workers increasing (better hours, pay, breaks, benefits, technology, etc.) should lead to an INCREASE IN SUPPLY •However, if the reason for productivity improving is better pay, supply shouldn’t necessarily increase too much (or at all in the short run) because the business will have less capital to invest in inputs (THUS, THE PAY RAISE OFFSET THE PRODUCTIVITY IN THE SHORT RUN). This should, however, increase supply in the long run.

Supply Curve Shifts 5. Government a. Taxes b. Subsidies OR Taxes: can reduce the supply of some goods by placing an excise tax (a tax on the production or sale of a good) on them. Excise taxes increase the production cost. Sometimes used to discourage the sales of goods that the Gov. thinks are harmful (cigarettes, alcohol, high pollutant gas). Tax built into price. Excise tax causes the supply of a good to decrease at all price levels. Supply curve shifts left. Subsidies: Govt give subsidies (a Govt payment that supports a business or market) to the producers of a particular good, especially food. U.S. farm subsidies controversial especially when farmers are paid to take land out of cultivation to keep prices high. In this case, more efficient farmers penalized. Shirt right (increase)

Supply Curve Shifts 6. Government Regulations OR 6. Government can raise or lower supply through indirect means. Government Regulation often has the effect of raising costs. Regulation- government intervention in a market that affects the price, quantity or quality of a good. EX- Technology in cars to reduce polltion: Regulation usually leads to increased cost of manufacturing and reduced supply, so supply curve shift to the left. •So, more regulations = less supply, and vice versa

Supply Curve Shifts 7. Availability of Resources 8. Producer Expectations OR 7.If resources become more scarce, the supply of goods that they are used to produce will DECREASE, and vice versa. 8. If a seller expects the price of a good to rise in the future, the seller will store more goods now in order to sell in the future. If price is expected to drop in the near future, sellers will earn more money by placing the good on the market immediately. Expectations of higher prices will reduce supply now and increase supply later and expectations of lower prices will have the opposite effect.

Draw a supply curve and label all shifts for each of the following scenarios. 1. Five Guy’s Burgers opens restaurants in Tucson and joins the the fast food burger market. What happens to the supply of burgers? Good: Restaurants (burgers) Factor: # of suppliers Effect: Increase in supply

2. The cost of milk (used in making Chocolate milkshakes) increases (due to a world-wide shortage of milk from dairy cows). What happens to the supply of milkshakes? Good: Chocolate Milkshakes Factors: Cost of input increase (due to less availability of resources) Effect: Decrease in supply

3. Five Guy’s purchases the KrocBot 3000 oven to produce hamburger’s more efficiently. What happens to the supply of hamburgers? Short run effect: Good: Hamburgers Factor: New technology (short-run) Effect: Decrease in supply

4. The KrocBot Oven increases long-term productivity in producing the Five Guy’s Hamburger! What happens to the supply of hamburgers? Good: Hamburger Factors: New technology (long-run) increases productivity Effect: Increase in supply

5. Arizona imposes a tax on all restaurants that use the KrocBot 3000 oven. What happens to the supply of food from restaurants that use this oven? Good: Five Guys Factor: Govt. tax increase Effect: Decrease in supply

6. The federal government provides subsidies to all restaurants that serve ground beef products. What happens to the supply of hamburgers? Good: ground beef products Factor: Govt. subsidy Effect: Increase in supply

7. A new law states that all ground beef products must be inspected for Mad Cow Disease. What happens to the supply of hamburgers? Good: Ground Beef Hamburgers Factor: Govt. regulation Effect: Decrease in supply