Market supply curve (cont.) Other possible determinants of supply include: Government policy: Subsidies will influence the supply of a product, while taxes decrease supply Natural disasters: Will have a negative effect on supply Joint products and by-products: A change in supply of products that are used jointly will have an effect on the supply of a product like sugar and syrup in our earlier example. Joint products are sometimes called complements in production Productivity: A decrease in productivity will have a negative effect on supply. Technology can have a positive effect in productivity.

Movements along and shifts of the supply curve Study Table 4-5 in your textbook Movements along and shifts of the supply curve A movement along the supply curve can be caused by a change in the price of a product. Any other variable will cause a shift of the supply curve itself. Variables that cause a shift in the supply curve are said to cause a change in supply. A change in supply leads to a shift in the supply curve

Read pg. 75 - 77 in your textbook 4.4 Market equilibrium Market equilibrium is when the quantity demanded is equal to the quantity supplied. Market equilibrium occurs at the intersection of the supply and demand curves. The price at which this occurs is called the equilibrium price At any other price there is disequilibrium in the form of excess demand or excess supply When quantity demanded > quantity supplied, there is excess demand/market shortage When quantity supplied > quantity demanded, there is excess supply/market surplus Price Quantity S E  Equilibrium Price D

We can now illustrate this equilibrium with a graph Let’s consider our markets for coffee. The demand and supply quantities for coffee is presented in the table below: Price of Coffee Demand for Coffee Supply of Coffee 10 100 20 80 40 30 60 50 Equilibrium occurs when the quantity demanded and quantity supplied are equal. Hence the equilibrium price of coffee is R30 as the quantity demanded and quantity supplied at this price does not differ. We can now illustrate this equilibrium with a graph

Market Equilibrium Price of Coffee Demand for Coffee Supply of Coffee 10 100 20 80 40 30 60 50 Equilibrium quantity is where the demand and supply curves intersect 60 And where the price of coffee is R30, according to the table

The functions of prices in a market economy Study Box 2-4 in your textbook The functions of prices in a market economy Prices serve two functions in the market economy Markets only reflect the plans of those who are able to participate as consumers or suppliers Prices Rationing function Ration goods and services to those who place the highest value on them Allocative function Serve as signals which directs the factors of production between different uses in the economy In markets only money votes count!!

Consumer surplus and producer surplus Read pg. 77 - 79 in your textbook Consumer surplus and producer surplus Price Sally is so dependent on her coffee that she is willing to pay a very high price for it However, coffee is in abundance, market forces push the price of coffee to a lower price (market price) As the price becomes lower, so the quantity demand for coffee increases (hence the downward sloping demand curve) Sally therefore pays far less for coffee than she is willing to, and saves a lot of money The amount of money that is saved, is the consumer surplus The consumer surplus is depicted by the area above the market price and below the demand curve Market price D Quantity

Mark is willing to sell coffee at a very low price However, due to the adequate market demand for coffee, Mark is able to sell it at the much higher market price The additional amount of money that Mark is able to make by selling coffee at the market price, is called producer surplus Because Mark is able to sell his coffee at a higher price, he is now also willing to produce and supply more coffee The producer surplus is depicted by the area above the supply curve and below the market price Movements in the price and quantities demanded or supplied, thus have an impact on the producer and consumer surpluses Price S Market price D Quantity

4.6 Algebraic analysis of demand and supply Read Appendix 4-1 on pg. 80 -81 in your textbook 4.6 Algebraic analysis of demand and supply Question: If demand is given by the formula 𝑄 𝑑 =150 −4𝑃 and supply is given by the formula 𝑄 𝑠 =30+2𝑃. What is the equilibrium price and equilibrium quantity? How to do it?

4.6 Algebraic analysis of demand and supply Read Appendix 4-1 on pg. 80 -81 in your textbook 4.6 Algebraic analysis of demand and supply Equilibrium is where quantity supplied is equal to quantity demanded Thus: 𝑄 𝑠 = 𝑄 𝑑 30+2𝑃=150 −4𝑃 2𝑃+4𝑃=150 −30 6𝑃=120 𝑃=20 Take the price (R20) substitute it into either the demand or supply formula’s to get equilibrium quantity 𝑄 𝑠 =30+2 20 𝑄=30+40 𝑄=70 Substitute the formulas that was given in the question Get all values with a P on one side. Simplify and solve for P