© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 1 Market Supply and Price Determination The Law of Supply 4-1 Shifts in the Supply Curve 4-2 The Free Market Price 4-3 Role of Government in a Free Market System 4-4

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 2 L earning O bjectives 4-1 The Law of Supply Explain the law of supply.LO1-1 Understand the difference between an individual and a market supply curve. LO1-2

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 3 Vocabulary 4-1 The Law of Supply The Supply Curve supply quantity supplied law of supply supply schedule supply curve Market Supply individual supply curve market supply curve

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 4 The Supply Curve Supply is the relationship between the price and quantity supplied for a good or service. Based on the assumption that other variables remain unchanged. 4-1 The Law of Supply Quantity supplied is the amount of goods or services sellers offer for sale at a given price.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 5 The Supply Curve The law of supply states there is a direct relationship between the price of a good and the quantity sellers offer for sale. 4-1 The Law of Supply Sellers have a profit incentive to charge higher prices. At a higher price, suppliers devote more resources to a product, which results in a greater quantity supplied.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 6 The Supply Curve A supply schedule is a table the lists quantity of a good or service sellers offer for sale a possible prices. 4-1 The Law of Supply A supply curve is formed by the line connecting possible price and quantity supplied responses of sellers. Allows you to find the quantity demanded at each possible selling price.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 7 Vocabulary CHECKPOINT The Supply Curve 4-1 The Law of Supply supply quantity supplied law of supply supply schedule supply curve Assume you could sell pizzas at a higher price. How does the law of supply relate to the number of pizzas you would be willing to offer for sale at higher price? If the price of pizza increases, businesses that produce pizza will supply greater quantities.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 8 Market Supply 7-1 Own Your Own Business An individual supply curve is the supply curve for a single seller. A market supply curve is the sum of all individual supply curves in a market.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 9 Vocabulary CHECKPOINT Market Supply 7-1 Own Your Own Business individual supply curve market supply curve Explain the difference between an individual supply curve and a market supply curve. An individual supply curve is the supply curve facing a single seller. When all the individual supply curves in a market are added together, the results is a market supply curve.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 10 L earning O bjectives 4-2 Shifts in the Supply Curve Explain the difference between changes in quantity supplied and changes in supply. LO 2-1 Identify supply shifters factors that cause changes in supply. LO 2-2

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 11 Vocabulary 4-2 Shifts in the Supply Curve Difference Between Changes in Quantity Supplied and Changes in Supply change in quantity supplied change in supply Supply Shifter Factors excise tax subsidy

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 12 Difference Between Changes in Quantity Supplied and Changes in Supply Change in quantity supplied results solely from a change in price. 4-2 Shifts in the Supply Curve a movement between points along a stationary supply curve Change is based on assumption that all other supply shifter factors remain constant. A chance in supply is an increase (rightward shift) or a decrease (leftward shift) in the quantity supplied at each price.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 13 Vocabulary CHECKPOINT 4-2 Shifts in the Supply Curve change in quantity supplied change in supply What is the difference between a movement along a supply curve and a shift of a supply curve? A movement along a supply curve is the result of a change in price that causes a change in the quantity supplied. A change in supply is the result of a change in one or more of the supply shifter factors. Movement of a supply curve to the right shows that more products will be supplied at each price while movement to the left shows that fewer products will be supplied at each price. Difference Between Changes in Quantity Supplied and Changes in Supply

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 14 Supply Shifter Factors 4-2 Shifts in the Supply Curve Excise tax is a tax paid by the seller on the production or sale of a good or service. A subsidy is a payment from the government to support a business that reduces its costs.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 15 Vocabulary CHECKPOINT Supply Shifter Factors 4-2 Shifts in the Supply Curve excise tax subsidy Which supply shifter factor is affected by an increase or decrease in the supply curve for airline tickets? An increase in the price of oil would cause the supply curve for any product that uses oil as a resource to shift to the left. This includes airlines tickets because of the cost of jet fuel.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 16 L earning O bjectives 4-3 The Free Market Price Understand how a free market determines equilibrium prices. LO 3-1 Analyze how changes to demand and supply affect the equilibrium price. LO 3-2

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 17 Vocabulary 4-3 Free Market Equilibrium surplus shortage disequilibrium equilibrium Changes in Market Equilibrium The Free Market Price

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 18 Free Market Equilibrium Surplus occurs at any price at which the quantity supplied is greater than the quantity demanded. 4-3 The Free Market Price Shortage occurs at any price at which the quantity supplied is less than the quantity demanded.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 19 Free Market Equilibrium Disequilibrium occurs at a market price at which the quantity demanded does not equal the quantity supplied. 4-3 The Free Market Price Equilibrium occurs at a price at which the quantity demanded and the quantity supplied at equal.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 20 Vocabulary CHECKPOINT Free Market Equilibrium 4-3 The Free Market Price surplus shortage disequilibrium equilibrium Why would you prefer a world with all markets in equilibrium? If all markets are in equilibrium, there are no shortages or surpluses. In this world, consumers are not frustrated because they want to buy something but is not on the shelf. Sellers are not upset because unsold merchandise is piling up in the storeroom unsold. Everyone is happy!

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 21 Changes in Market Equilibrium An increase in demand causes both the equilibrium price and the equilibrium quantity to increase. Unwanted inventory forces a reduction in price and quantity supplied, which causes the equilibrium price and quantity to fall. 4-3 The Free Market Price

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 22 Change in Market Equilibrium When demand increases, the equilibrium price and equilibrium quantity increase. When demand decreases, the equilibrium price and equilibrium quantity decrease. When supply increases, the equilibrium price decreases and equilibrium quantity increases. When supply decreases, the equilibrium price increases and equilibrium quantity decreases. 4-3 The Free Market Price

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 23 Vocabulary CHECKPOINT Changes in Market Equilibrium 4-3 The Free Market Price A hotel room in Myrtle Beach, SC, charges $75 a night in February, but $200 a night in July. Why is there a difference in price? Between February and July, there is an increase in demand for rooms. The winter is the low-demand season. The result is a lower equilibrium price per night. During the summer, the number of buyers increases and shifts the market demand curve rightward. This is the high-demand season. Here the result is a higher equilibrium price.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 24 L earning O bjectives 4-4 Role of Government in a Free Market System Understand the effect of price ceilings and price floors on a market. LO 4-1 Discuss government regulation and deregulation in the U.S. free market system. LO 4-2

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 25 Vocabulary 4-4 Can the Laws of Supply and Demand Be Repealed? price ceiling rent control price floor minimum wage Regulation of the Free Market System Role of Government in a Free Market System regulation deregulation

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 26 Can the Laws of Supply and Demand Be Repealed? A price ceiling is a legally established highest price a seller can charge for a good or service. 4-4 Role of Government in a Free Market System A rent control is a price ceiling place by the government on rent.

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 27 A price floor is a legally established lowest price a seller can charge for a good or service. A minimum wage is a legally established lowest hourly wage rate that can be paid to workers. Can the Laws of Supply and Demand Be Repealed? 4-4 Role of Government in a Free Market System

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 28 Vocabulary CHECKPOINT Can the Laws of Supply and Demand Be Repealed? prices ceiling rent control price floor minimum wage Why wouldn’t the government set the minimum wage at $10,000 per hour? What are they afraid of? What would happen to employ- ment if the minimum wage price floor were eliminated? At $10,000/hr, workers would not have jobs. No unskilled worker is worth $10,000 per hour. They would be replaced with machines. Scrapping the minimum wage law would bring at least some new workers into the workplace not previously worth the minimum wage. 4-4 Role of Government in a Free Market System

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 29 Regulation of the Free Market System A regulation is a government rule or law designed to control business. The following are regulated: Food quality Activities that impact the environment Airline safety Most industries deal with some form of regulation. 4-4 Role of Government in a Free Market System

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 30 Regulation of the Free Market System Deregulation is the removal of government restrictions or controls on a market. Higher production costs the resulting from regulation led to the movement toward deregulation in the late 1970s and 1980s. The primary industries impacted was transportation and telecommunications. Successful deregulation should result in a decline in the average price of a service with an increase in the volume and variety of that service. 4-4 Role of Government in a Free Market System

© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. chapter 4 31 Vocabulary CHECKPOINT Regulation of the Free Market System How can laws and regulation improve the operation of the free market system? The government wants to promote competition and to protect consumers. The Sherman Antitrust Act prevents conspiracies to fix prices. Fixing prices is anti-free markets and makes consumers pay too much for products. Society also does not want an economic system that produces unsafe food, drugs, products, or working conditions. Neither does society want pollution in the air or water. regulation deregulation 4-4 Role of Government in a Free Market System