Chapter 6: Demand, Supply & Markets

The Supply Curve Supply The quantities of a good or service that sellers are willing and able to sell at various prices Similar to demand, supply can be shown as a schedule and then as a graph

The Law of Supply Law of Supply Increase in price (P) will increase quantity supplied (Qs) Decrease in price (P) will decrease quantity supplied (Qs) Direct relationship between P and Qs

An Increase In the Supply of Melons Price Quantity Supplied (000’s) S 0 $1.00 $ $1.50 $2.00 $ P $ Q S1S1

An Increase In the Supply of Melons An increase in supply is represented by a shift in the supply curve to the right (S 1). At each price point, producers are willing to supply more goods. For example, at $1.00, producers were supplying 10,000 units. Now producers are willing to supply 15,000 (an increase of 5,000 units)

A Decrease in the Supply of Melons Price Quantity Supplied (000’s) S 0 $1.00 $ $1.50 $2.00 $ P $ Q S0S0

What causes Demand & Supply curves to shift? Causes For Demand Shifting 1. Market Size 2. Income (Normal / Inferior Goods) 3.Price of Substitutes 4.“ “ Complements 5. Tastes 6.Consumer Expectations Causes For Supply Shifting 1. Change in Nature 2. Resource Price 3. Technology 4. Labour Productivity 5. 5.# of Producers 6. 6.Producer Expectations

Market Equilibrium The point where the supply curve and the demand curve intersect At this point, Qd = Qs (quantity demanded = quantity supplied)

Market Equilibrium Supply=Demand Price Quantity D P$P$ Q S 0

Equilibrium in the Market for Melons Price Quantity Supplied (000’s) 0 $1.00 $ $1.50 $2.00 $ P $ Q D S

D2 An Increase in the Demand for Computers Shortage of (thousands) (Hundreds of dollars)

D0 A Decrease in the Demand for Computers Surplus of (thousands) (Hundreds of dollars)

S2S2 An Increase in the Supply of Computers Surplus of (thousands) (Hundreds of dollars)

S0S0 A Decrease in the Supply of Computers Shortage of (thousands) (Hundreds of dollars)

Elasticity of Supply Similar to Dd shows the responsiveness of the quantity supply to a change in price The key factor effecting supply elasticity is time. Given more time a producer can supply more of a product in response to higher prices

Elasticity of Supply Goods that can be stored easily, inexpensively and for long periods of time will be more elastic than more perishable products

Gov’t Involvement in the Market At times the market system is unfair so in our mixed market system the government steps in to make the situation more fair If the government feels the price is too high then they make the price legally lower. This is called a ceiling price, but the problem is Qd > Qs

Gov’t Intervention in the Market If the government feels the price is too low then they make the price legally higher. This is called a floor price, but the problem is Qs > Qd

Your Turn Complete Page 133 #1-3 Complete key terms definitions, page 119 and page 133