1. Supply Shifts and Price Equilibrium

2. Objectives Use Supply shift graphs to predict business decisions Use Price EQ to determine Market Price, understanding the underlying assumptions C2 po2

3. Using Supply and Demand to Set Prices Assumptions – Ceterus Paribus – Cause and Effect – “Perfect” Knowledge of Q Demand and Q Supply – “Rational” Action of Consumers, Producers and Government – Price Up, Demand Down, Supply Up

4. Supply Shift Plotted TABLE 2 Supply of Videos PriceQuantity Supplied $550 $440 $330 $220 $1 10

5. Price Equilibrium In a competitive market, the Intersection of Demand and Supply sets the market price Multivariate depending on FOP’s, Elasticity Price Equilibrium means balance between supply and demand Price Equilbrium allows scarce resources to be used in the most valuable and productive way.

6. Price Equilibrium

7. Determination of PE Target Price Point – If you have to ask, you can’t afford it Target Profit Margin – Total cost of production+ % of value added Auction – Buyers competitively bid on single items or lots and determine price when there is no more demand (Tsukiji Fish Market, Ebay)

8. Influence of Elasticity Elasticity means sensitivity to price change If Elastic= Small increases in Price will lead to large increases in Supply – (Pizza Companies) If Inelastic= Even large increases in Price will not necessarily lead to large increases in Supply – (Diamonds from DeBeers)

9. Production Costs Supply is sensitive to Costs of Production – Costs of Production is measured by Marginality – Marginality means the costs vs. the benefits of adding another Factor Of Production More Land More Labor More Capital

10. TGB Teachers per student Minimum Students per Class 10 Maximum Students per Class 36 Total Students 3,400 Total Teachers 140 Teachers per class= 1.02 Optimal Class size= 23 How many teachers could TGB have? How few teachers could TGB have? Why are some classes +/- Optimal (23)?

11. Law of Diminishing Returns Level of production in which the marginal product of labor decreases as the number of workers increases. Producers seek the most efficient level of production to ensure supply and profits

12. Assessing Costs Fixed Costs- Costs that don’t change, regardless of production (rent, maintenance) Variable Costs- Rise and fall w/ Quantity produced (resource/materials costs) Total Costs= FC+VC

13. Case Study Discussion 1 Consider the following: – You are hiring a babysitter for your only child for one day, from 8am-1pm Assume a second child would double the price. Using Arizona minimum wage ($7.50/hr), what would you have to pay a babysitter to watch your only child for 5 hours? What would you have to pay for 139 children per day? What would be their yearly earnings (183 days)? How might supply and demand effect earnings?

14. Case Study Discussion 2 New York Yankee Alex Rodriguez recently signed a 10 year, $275 million dollar contract to play baseball. Mr. Reimers signed a 1 year, $45,000 contract to teach high school. $ per hour rate? Value to society?

15. TakeAway Supply is multivariate Supply is also influenced by elasticity Diminishing Returns and Total Cost has a huge influence of supply Consumers largely determine what is supplied.