1. Microeconomics: Supply and Demand
Unit 2 Economics
Microeconomics: Supply and Demand

2. Essential Question:
Explain the Law of Supply and how changes in our society result in shifts in producer’s willingness and ability to provide goods and services.
Give specific examples of real world events that would result in shifts in supply for particular products.

3. Determinants of Elasticity
Substitutability (more substitutes = more elastic)
Proportion of Income (larger the portion of income = more elastic)
Luxuries (more elastic) versus Necessities (less elastic/inelastic)
Time (more time = more elastic)

4. Relatively Elastic Demand
Total Revenue (TR)
TR = P x Q
Elastic Demand (lower prices = higher total revenue, higher prices = lower total revenue, Inverse relationship) $3 2 1 Q P a b D1

5. Relatively Inelastic Demand
Total Revenue (TR)
TR = P x Q
Inelastic Demand (lower prices = lower total revenue, higher prices = higher total revenue, direct relationship) $4 3 2 1 Q P c d D2

6. Elasticity of Demand
6:12

7. Unit Elasticity Total Revenue (TR) TR = P x Q
Unit-Elastic (changes in price do not change total revenue) $3 2 1 Q P e f D3

8. Price Elasticity of Demand
Extreme Cases
Perfectly Inelastic Demand P Q D1
Perfectly
Inelastic
Demand
(Ed = 0)
Perfectly Elastic Demand P Q D2
Perfectly
Elastic
Demand
(Ed = ∞)

9. Demand and Supply
7:02

10. Supply
Definition – amount of a product or service that producers are willing and able to make at various prices
Law of Supply – as prices rise, quantities supplied rise, as prices fall, quantities supplied fall (direct relationship)
A change in the price of a product results in a change in the QUANTITY SUPPLIED! (it does NOT shift Supply)

11. Supply
4:54

12. Supply Curve
Definition: a graph showing the various combinations of prices and quantities supplied

13. Supply Curve
2:54

14. Supply Schedule
Definition: table/chart listing the quantities that will be produced at each price

15. Supply Schedule
1:11

16. Individual Supply Individual Supply P Qs $5 4 3 2 1 60 50 35 20 5 P S1
Individual
Supply S1 P Qs $5 4 3 2 1 60 50 35 20 5
Price (per bushel) Q
Quantity Supplied (bushels per week)

17. Determinants of Supply
Individual Supply
Determinants of Supply
(factors that cause a shift or a change in Supply)
Resource Prices (inputs)
Productivity
Technology
Taxes and Subsidies
Government Regulation
Producer Expectations
Number of Sellers
If it becomes cheaper, easier, or faster to make products, then supply will increase
If it becomes more difficult, more expensive, or slower to make products then Supply will decrease

18. Individual Supply Supply Can Increase or Decrease Individual Supply P6 5 4 3 2 1 S3
Individual
Supply S1 S2 P Qs $5 4 3 2 1 60 50 35 20 5
Price (per bushel) Q
Quantity Supplied (bushels per week)

19. Essential Question:
Explain the Law of Supply and how changes in our society result in shifts in producer’s willingness and ability to provide goods and services.
Give specific examples of real world events that would result in shifts in supply for particular products.