Microeconomics Modules 4-6

Intro Law of supply- a principle in economics that states that as the price of a good, service or resource rises the quantity supplied will increase, vice versa all else held constant Diminishing marginal productivity- a principle that if at least one input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else held constant.

Module 4 Supply

Intro Supply schedule- a tabular representation of the relationship between the price of a good, service or resource and the quantities producers are willing and able to supply over a fixed time period, all else held constant. Supply curve- a graphical representation of the relationship between the price of a good, service or resource and the quantities producers are willing and able to supply over a fixed time period, all else held constant. Quantity supplied- quantity of a good service or resource that producers are willing and able to supply at a given price.

AS PRICE RISES QUANTITY SUPPLIED RISES Important to remember AS PRICE RISES QUANTITY SUPPLIED RISES

Market supply Market supply- the overall/total supply of a good service or resource. It represents the horizontal summation of the quantities supplied by individuals, firms, sates or nations at each price over a fixed time period all else held constant When talking about the supply of apples we are referring to the quantity of apples producers are willing and able to supply at a variety of prices To find market supply, add up all market totals at a particular price.

Shift in supply Shift in supply- a change in the quantity of a good, service, or resource supplies at every price. On a graph, and increase in supply is a shift to the right (so it moves to the right) a decrease would be a shift to the left ( so it moves to the left) Movement along the supply curve- a change in the quantity of a good, service, or resource supplied due to a change in price

Shift in supply VERY IMPORTANT TO RMEMEBE! A CHANGE IN PRICE WILL EFFECT THE QUANTITY SUPPLIED. A CHANGE IN PRICE WILL CAUSE A MOVEMENT ALONG THE SUPPLY CURVE. ANY OTHER DETERMINANT OF SUPPLY WILL SHIFT THE ENTIRE SUPPLY CURVE! ANY OTHER DETERMINANT OF SUPPLY OTHER THAN PRICE WILL CAUSE A SHIFT, MEANING A CHANGE IN THE QUANITITY SUPPLIED AT EVERY PRICE.

Determinants of Supply- Taxes and subsidies Subsidy- a payment made by the government that does not necessarily require an exchange of economic activity in return. Key word is made by aka given BY the government Tax- a payment made to the government that is the result of economic activity. Key word is made to, aka given TO the government

Subsidy and taxes Taxes shift the supply curve to the left; because sellers are less willing and able to sell products if every product they sell they have to give a portion to the government Subsidies shift supply curves to the right; because sellers are more willing and able to sell products if every product they sell means making the same amount without loosing money out of their pocket.

Determinants of Supply-resource costs and technology Resources-the inputs used to produce goods and services also known as factors of production. ( land, labor, capital, entrepreneurial ability) Depending on whether resources price goes up or down, will effect which way the supply curve shift. If the price of water increases then, then Dasani's supply curve will shift to the left (decrease of quantity supplied at each price) If the price of water decreases then, Dasani's supply curve will shift to the right ( increase quantity supplied at each price) Technology- the knowledge, inventions, and innovations that can potentially increase resource productivity If new technology becomes available then production will become cheaper, thus the price of production will be cheaper causing suppliers to be willing able to supply more. The supply curve will shift to the right. ( increase quantity supplied at each price)

Determinants of Supply-price expectations and number of sellers Sellers- market participants who are willing and able to sell goods, services, or resources Sellers expectations-the anticipated future outcomes, including prices, that sellers associate with the production of a good service or resource. Production- quantity of output firms produce Supply- refers to the quantity of output firms are willing and able to provide to the market at different price all else held constant

Determinants of Supply-price expectations and number of sellers A decrease in the number of sellers WILL CAUSE A SHIFT TO THE LEFT. This happens because at every given price there will be less quantity meaning a decrease in quantity meaning a shift to the left. And vice versa Expectations If it is expected that the price they can sell a product for will decrease in the near future, then they will increase the quantity supplied at every price thus shifting the supply curve to the right. And vice versa

Mnemonic Device for the determinants of supply SuTaRc #SeTPe Su- subsidies Ta- Taxes Rc- Resource cost #Se- number of sellers T- Technology Pe- Price expectations

Module 5 Market Equilibrium

Demand, Supply, and Equilibrium Equilibrium price- the price at which the quantity supplied of a food, service or resource equal the quantity demanded. (where the curves intersect/ market clearing price) Equilibrium quantity- the quantity at which the quantity supplied of a food, service or resource equal the quantity demanded. (where the curves intersect/ market clearing price) To find the equilibrium look for the point in which they intersect

Disequilibrium's- Surpluses and shortages Shortage- a situation in which the quantity demanded is greater than the quantity supplied at the current market price. Also called excess demand Surplus-a situation in which the quantity supplied is greater than the quantity demanded at the current market price. Also called excess supply We measure shortages and surpluses in the difference of quantities at the given market price.