Demand Review The two conditions of demand are ________ and ____________ to purchase. The law of demand says that as the price of a good increases, the quantity demanded of the good_________ According to the law of demand, price and quantity demanded move in _______ direction(s).

Demand Review Simon in not willing to pay $7 for every download because his utility (satisfaction) decreases as he downloads more and more music. Economists call this concept the ________________. What will cause a change in the quantity demanded for a good? ____________________________

Demand Review How is the change in quantity demanded represented on a graph? __________________________________  If demand increases, the demand curve shifts________, meaning that the buyers want to buy__________ of a good at each and every price.

Demand Review Indentify if the demand is inelastic, elastic, or unit-elastic. ________ The price of corn rises 5 percent, and the quantity demanded falls 15 percent. ________ The price of bagels rises 8 percent, and the quantity demanded falls 8 percent. ________ The price of telephones rises 10 percent, and the quantity demanded falls 2 percent.

Understanding Supply

What is Supply? Supply: The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period.

What is Supply? Example OPEC is made up of countries that have oil resources. (Saudi Arabia, Venezuela, etc.) They meet from time to time to agree how much oil they are willing and able to pump and refine into gasoline and then set production targets for member countries.

What is the Law of Supply? A law stating that as the price of a good increases, the quantity supplied of the good increases, and as the price of a good decreases, the quantity supplied of the good decreases. When oil prices are high, OPEC countries increase oil production. When oil prices are low, they cut production P↑ then Qs↑ P↓ then Qs↓

Quantity Supplied # of units of a good produced and offered for sale at a specific price. Ex. Seller will produce and offer to sell five hamburgers when the price is $2. 5 is the quantity supplied at this price. Draw graph on board… pg 115

Supply Schedule Price Quantity Supplied 1 12 2 28 3 42 4 52 5 60 A numerical chart illustrating the law of supply

Supply Curve Supply curve is a line that slopes upward (from left to right) and shows the amount of a good sellers are willing and able to sell at various prices.

Vertical Supply Curve Law of supply does not hold for all goods; nor does it hold true over all time periods Vertical curve exists in a situation where there are a limited amount of a good or service A violin made by Stradivari… Ex: Theater tickets; stadium tickets, certain antiques 30 20 10 0 10 20 30 40 50 60 70

Change in Supply vs. Change in Quantity Supplied A change in quantity supplied refers to a movement along a given supply curve. This is brought on ONLY by a change in a good’s price S1 B A

Chapter 5, section 1-3, 7 p. 116 (1-3), 7

Market Supply vs. Firm’s Supply Draw picture on board…

The Supply Curve Shifts When sellers want to sell more or less of a good at every price. When supply increases, the curve shifts right. When supply decreases, the curve shifts left.

What Factors Cause Supply Curves to Shift? Resource prices Changes in technology Government – taxes, subsidies, quotas Number of sellers Seller expectations Weather (in some cases) In the next slides many examples will be given, please write down the six factors, examples and the direction of shift caused by changes.

What Factors Cause Supply Curves to Shift? 1. Resource Prices: Land, labor, and capital These resources are used to produce goods and services. Thus, when resource prices fall sellers are able and willing to produce and offer to sell more of the good (supply curve shifts to the right). Ex: wage rate for car manufacture; increased wages causes shift to the ______________. 2. Technology: The ability to produce more output with a fixed amount of resources. Ex: farming

What Factors Cause Supply Curves to Shift? 3. Government Taxes: Taxes on the per-unit costs (avg. cost of a good) increase or decrease. Ex: shoe manufacture has to pay a $2 tax per pair of shoes… Subsidies: A financial payment made by the government for certain actions. Ex: Farmer gets paid $5 per bushel of corn he produces from the government on top of whatever he sells it for. Quotas: A legal limit on the number of units of a foreign produced good (import) that can enter the country Ex: 100,00 cars come from Japan and than the government imposes a quota of 80,000. This will decrease supply and the curve will shift to the left.

What Factors Cause Supply Curves to Shift? 4. Number of Sellers: sellers enter or leave the market 5. Seller Expectations for Future Prices: If sellers expect prices to increase or decrease in the future it will affect how much they are willing to supply at that specific time. Ex: All of the people waiting to sell their houses

What Factors Cause Supply Curves to Shift? Weather -Bad weather reduces the supply of many agricultural goods such as corn, wheat, and barley. -Bad weather from hurricanes, damaged fishing boats, shipping docks, and oil refineries. Ex: Chile right now-bananas and grapes

What Factor Causes a Change in Quantity Supplied? Price! A movement along the supply line. Ex: draw graph of shoes on board and show how price has to go up in order for quantity supplied to change.

Elasticity of Supply Elastic-Quantity supplied changes by a larger % than price. (greater than 1) Ex: price rises by 10% and quantity supplied rises by 15% Inelastic-Quantity supplied changes by a smaller % than price. (less than 1) Ex: Price of cars rises by 10%, quantity supplied rises by 5% Unit-Elastic-Quantity supplied changes by the same percentage as price. (=1) Ex: Price rises by 10%, quantity supplied rises by 10%

Es= % change in Quantity Supplied Elasticity of Supply Es= % change in Quantity Supplied % change in Price

Rest of Class… Compound interest in the stock market Computer lab. Finish packet for homework!

Compound Interest Compound interest arises when interest is added to the principal (relating to the initial amount of money that was invested or borrowed), so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the principal is called compounding (i.e. the interest is compounded).

How it can affect you negatively… A loan, for example, may have its interest compounded every month: in this case, a loan with $100 initial principal and 1% interest per month would have a balance of $101 at the end of the first month, $102.01 at the end of the second month, and so on. Since most people prefer to think of rates as a yearly percentage, many governments require financial institutions to disclose the equivalent yearly compounded interest rate on deposits or advances. For instance the yearly rate for the loan in the above example is approximately 12.68%. This equivalent yearly rate may be referred to as annual percentage rate (APR)

How it can affect you positively… Investments http://www.math.com/students/calculators/source/compound.htm

Make some things happen! Head down to the Computer lab! Remember Quiz tomorrow and Packet due!