D S1S1S1S1 S2S2S2S2 S3S3S3S3 P1P1P1P1 Q1Q1 Q2Q2Q2Q2 P2P2P2P2 Q3Q3Q3Q3 P3P3P3P3.

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Presentation transcript:

D S1S1S1S1 S2S2S2S2 S3S3S3S3 P1P1P1P1 Q1Q1 Q2Q2Q2Q2 P2P2P2P2 Q3Q3Q3Q3 P3P3P3P3

“Decrease in D” Increase in “QD” [caused by a “decrease in price”] Decrease in “QD” [caused by an “increase in price”] 1. Price change 2. Movement 3. P oint to p oin t [“ Snap shot of 1 pt in time ] Change in “D” [“TIMER”] 1. Non-price 2. Whole curve 3. Shift [“Time passes”] What could cause an “increase in Demand?” Expectationsshortage What could cause an “increase in Demand?” 5. Expectations of a shortage tasteExpectationsprice increase 1. Increase in taste 6. Expectations of a price increase incomenormal goodExpectationspositive future income 2.Increase in income [normal good] 7. Expectations of positive future income incomeinferior goodIncrsubstitute 3. Decrease in income [inferior good] 8. Incr in price of a substitute for product “X” market size# of consumersDecrcomplement 4. Increase in market size [# of consumers] 9. Decr in price of a complement of product “X” P1P1P1P1 P2P2P2P2 QD1 P1P1P1P1 P2P2P2P2 D D D1D1D1D1 D2D2D2D2 D1D1D1D1 D2D2D2D2 P P “Increase in D” QD2

Quantity Supplied vs. Supply Quantity Supplied [QS] is triggered by a price change. Quantity Supplied [QS] is triggered by a price change. QSproducers are willing and able to supply at a given time. QS means quantity of a good/service that producers are willing and able to supply at a given time. Price can not cause a change in “S” [shift] Price can only cause a change in “QS” [movement]. Price can only cause a change in “QS” [movement]. Supply [S]: [ triggered by non-price “RATNEST”] producers will supply at different prices Supply not an amountbehavior A schedule of the total quantities of a good or service that producers will supply at different prices at a given time. Supply is not an amount but a behavior. Supplybunch of QS’sstrung together Supply is a bunch of QS’s strung together.

10,000 30,000 QS1 QS2 QS1 QS2 5,000 10,000 QS1 QS2 QS1 QS2 65,000 QS 2 QS 2 25,000 QS 1 QS 1 S $3 $2 Soybeans [bushels] Soybeans [bushels] “Particular Price” Firm A’s Supply Firm B’s Supply Firm C’s Supply Soybeans [bushels] $3 $2 $3 $2 $3 $2 10,000 25,000 QS1 QS2 QS1 QS2 S S Direct – both variables move in same direction. S Deriving Market Supply from Individual Firm Supply Curves

. QS 2 Direct Reasons For Upsloping “S” Curve There is increasing opportunity cost if you don’t produce. 1. There is increasing opportunity cost if you don’t produce. 2. Current producers produce more [overtime/more shifts] 3. New producers are attracted to the market. “S” refers to the “whole supply curve” and refers to what producers will supply at “different prices”. producers will supply at “different prices”. “QS” refers to a “point on the curve” and refers to what producers will supply at a “particular price”. producers will supply at a “particular price”. Change in “QS” 1. Price change 2. Movement (up/down “S” curve) 3. Point to point (along “S” curve) S QS 1 QS 1 P2P2P2P2 P1P1P1P1 increasesincreases Price increases; QS increases decreasesdecreases Price decreases; QS decreases Producers want the highest price possible. More of you would supply your labor for $12 than if labor were getting just $7.25 an hour.

QS of Crude Oil QS 1 S “ParticularPrice” $85 $11 Oil production cost for $ 5.00 Saudi Arabia is $ 5.00 per 42-gallon barrel. $ For Russia, it is $ per barrel. $15-$20 It costs about $15-$20 per barrel to get oil deep in the Gulf of Mexico. $40 It cost about $40 to get oil from oil shale’s in Colorado. So at $45, they increase production. In Canada, it costs Shell $ $ to produce a barrel tar sands of from the tar sands of Alberta Alberta. [like getting oil from peanut butter] The 175 billionbar, Canadians 175 billion bar, 2 nd in volume only to the Saudis. [We get 1.1 million barrels a day there now] $6 $25 $45 QS 2 QS 3 QS 4 QS 5 Price 42gallons

Most Expensive Gas $ Sierra Leone$ Aruba Bosnia-Herzegovina Eritrea Norway Netherlands United Kingdom Monaco Iceland Belgium 8.22 Least Expensive Gas 12¢ 1. Venezuela12¢ 2. Saudi Arabia45¢ 3. Iran50¢ 4. Libya50¢ 5. Swaziland54¢ 6. Qatar73¢ 7. Bahrain81¢ 8. Egypt89¢ 9. Kuwait90¢ 10. Seychelles98¢

“Bread & Butter” “Bread & Butter” of Economics [“perfectly competitive markets”] Law of Supply The Law of Supply says QSdirectlyprice QS varies directly with price. P2P2P2P2 QS 1 S Direct priceQSmove same direction Direct – price and QS move in the same direction. (increase together or decrease together) P1P1 Supply Supply (& Demand) Law Of Demand The Law Of Demand says QD inversely price QD varies inversely with price. QS 2

SUPPLY SCHEDULE $12345 P QS CORN S SUPPLY CURVE $5 $4 $3 $2 $1 SUPPLY SCHEDULE and SUPPLY CURVE [“Picture of the Law of Supply”] SUPPLY SCHEDULE and SUPPLY CURVE [“Picture of the Law of Supply”] P P QS

- As price increases …Q S also increases …Q S also increases DirectPQS Direct relationship between P & QS P2P2P2P2 P1P1P1P1 QS 1 S P1P1P1P1 P2P2P2P2 S “Take it. We are losing money.” QS1 -As pricedecreases -As price decreases … QS also decreases “Let’s make more.” QS 2 QS2

Supply 45. Elastic Supply – a small increase/decrease in price causes significant change in QS. Elastic supply is very responsive to price changes. Elastic (Flexible) SupplyInelastic (Inflexible) Supply 1.Can be made quickly1. Cannot be made quickly 2.Little expense (few2. Great Expense (large capital capital resources required) resources required) (47) Unskilled(48) Skilled 3. (47) Unskilled workers3. (48) Skilled workers 4. Long time4. Short time 5. Don’t need scarce 5. Scarcity of natural resources natural resources (50) T-shirts Examples: (50) T-shirts, hats,Examples: Gold, diamonds, (49) computers shot glasses, and postersand (49) computers

“Supply Shifters” [RATNEST] R INVERSE 1. R esource Cost [wages /raw materials ] [INVERSE] A INVERSE 2. A lternative Output Prices [INVERSE] T DIRECT 3. T echnology [DIRECT] N DIRECT 4. N umber of Suppliers [DIRECT] E INVERSE 5. E xpectations [about future price] [INVERSE] S DIRECT 6. S ubsidies [DIRECT] T INVERSE 7. T axes [INVERSE] QS1 QS2 Change in “Supply” [Curve] RATNEST 1. “Non-price change” [ RATNEST ] 2. Whole supply curve “shifts” [There was a QS change but it was not caused by a change in price]. Broccoli smalle “ Suppliers produce smaller/ larger larger quantities at each price.” “Substitutes in production” “Things that can be supplied with the same resources.” I only have 200 acres S1S1S1S1 S Corn S1S1S1S1 P S2S2S2S2 Alternative Output Price Change [INVERSE] QS 1 QS 1 P2P1P2P1 P S1S2S1 S2S1S2S1 S2 [new football league- bigger “S ” of games ] Don’t confuse these two with Chg in QS. QS 2 QS 3 S3S3S3S3 S2S2S2S2 P [capital cost]

1. Resource Cost [wages & raw materials] [Inverse] Wages Raw Materials S1S1S1S1 If resource cost decreases supply Increases [making more $] If resource cost increases supply Decreases [making less $] S2S2S2S2 S2S2S2S2 P

RC inverse R esource C ost [wages & raw materials] [inverse] 58. Increase in wages (increases/decreases) supply. Ex: A decrease in the price of computer chips (increases/decreases) the supply of computers. S1 P S2 S3

P1 QS1 Broccoli “Substitutes in production” [Remember, productive resources are scarce] S Corn S1S1S1S1 P S2S2S2S2 QS1 QS1 S1S1S1S1 P S2S2S2S2 S Corn Producers want to produce more of the good where price is increasing, or at least, where the price is not going down. Broccoli P2 QS2 QS2 These are “things that can be supplied with the same resources”. I only have 200 acres

A inverse A lternative O utput price changes [ inverse ] If the price of corn decreases, the supply of broccoli (increases/decreases). S3 S1 S2 P Supply of broccoli P S1S1S1S1 S2S2S2S2

56. If more firms enter an industry, the supply curve will shift to the (left/right). When the American Basketball League began play in 1968, there was a (bigger/smaller) supply of basketball games each week. 60. A new professional football league will (increase/decrease) the supply of football games. S 3 S 1 S 2 P

59.expectfuture oilprices to decline 59. If oil producers expect future oil prices to decline, they will (increase/decrease) current production. S1S1S1S1 Oil Prices expected to decrease [“INVERSE”] P S2S2S2S2 expect future oil prices to increase If oil producers expect future oil prices to increase, they will (increase/decrease) current production. S2S2S2S2 Oil Prices expected to increase cattle farmerexpects higher prices For example, if the cattle farmer expects higher prices for beef in the future, he will send (more/less) cattle to market now. He will keep them on the farm now and would send the cattle to the market in the future when prices are expected to be higher.

S3S3S3S3 [Direct] P subsidies Free money from the government (subsidies) induces suppliers to supply more. S1S1 S2S2S2S2 If subsidies are taken away, then suppliers are losing money and will decrease supply.

S3S3S3S3 [Inverse] P taxes decreased If business have their taxes decreased, it moves the supply curve to the right. S1S1S1S1 S2S2S2S2 taxes increased 55. If business have their taxes increased, it moves the supply curve to the (left/right). I’m losing profits.”

Supply Can Increase or Decrease Quantity Supplied (bushels per week) Price (per bushel) PQsQs $ Individual Supply P Q S1S1S1S1 S2S2S2S2 S3S3S3S Change in Supply [“RATNEST”] 1. Decrease in resource cost 2. Alt. output price decrease 3. Technological change 4. Increase in # of suppliers 5. P roducer exp. of price decrease 6. Increase in subsidies 7. Decrease in taxes 1. Increase in resource cost 2. Alt. output price increase 3. Technological decrease 4. Decrease in # of suppliers 5. P roducer exp. of price increase 6. Decrease in subsidies 7. Increase in taxes “S” is a whole bunch of QS’s strung together.