1. Supply
Chapter 5

2. How many hours do you spend studying every night
How many hours do you spend studying every night? How many hours would you study if you were paid $1 an hour? $10 hour?

3. Supply
Quantities that would be offered for sale at all possible prices that could prevail in the market.
Meaning, produce the number believed to be sold at those prices…
Supply Curve

4. Law of Supply
Quantity supplied, or offered for sale, varies directly with its price.
High price = high supply
Low price= low supply
Why?

5. Change in Quantity Supplied
Change in amount offered for sale in response to change in price
Moves on same curve

6. Change in Supply
Different amounts offered for sale at all possible prices
Shifts to new curves

7. Change in Supply Cost of Inputs Productivity Technology
Costs more or less to make affects supply
Productivity
better workers= more supply
Technology
Better technology=better supply
Number of Sellers
More suppliers more supply
Taxes and Subsidies
Affects cost of production and therefore affects supply
Expectations
If possible price hike, they may hold supply to sell at higher price
Gov’t Regs
More regs affects cost of production therefore affects supply

8. Practice Example: Productivity
Ms. Power has decided to bake cookies for all her students if they complete all of their homework. She expects to see an increase in supply of HW.
Create a scenario for each of the 7 reasons for Change in Supply.
Write the scenario, state the REASON and then show a general graph showing the supply curve shift. Be sure to label your curves S1 and S2.

9. Supply Elasticity
Tells the way in which changes in the quantity supplied are affected by changes in price
Elastic Supply
Change in price causes large change in supply
Inelastic Supply
Change in price little change in supply

10. Supply Elasticity
Change in price, large change in QS

11. Supply Inelasticity
Change in price causes small change in quantity supplied

12. Supply Elastic v. Inelastic

13. Determinants of Supply Elasticity
Supply elasticity depends on the nature of production
Short run production = inelastic
Difficult to produce, large amount of capital, can only supply so much
Long run production = elastic
Easy production, much supply can be made available

14. Determinants of Supply Elasticity

15. Practice
Determine if the following products are supply Elastic or Inelastic then draw what the curve would look like.
Crayons
Uranium
Jelly bracelets
Nuclear power plant

16. Demand v. Supply Elasticity
Little difference –
Concept the same
Demand elasticity is if purchased
Supply elasticity is if produced

17. Homework
Find a newspaper headline that depicts a reason for there to be a change in supply.
Explain what REASON is depicted then show how it would shift the curve on a general supply curve graph.
Pg 124
Reviewing Facts #s 1-4,

18. How Prices are Determined
Chapter 6

19. Have you ever sold something to a friend?
Perhaps you wanted to sell at one price and your friend wanted to buy at another. After some compromise, you probably agreed on a price, and the exchange took place.
Your price was an EQUILIBRIUM PRICE, or one that clears the market.

20. What is market equilibrium?

21. Demand/Supply Schedule
Price QD QS
Surplus/Shortage
$10
200
1600 8
400
1200 6
800 4 2
DETERMINE THE SUPLUS OR SHORTAGE FOR EACH AMOUNT AT EACH PRICE.
GRAPH BOTH THE QD AND QS ON THE SAME GRAPH.
LABEL EVERYTHING AND MARK THE EQUILBRIUM PRICE.

22. Demand/Supply Schedule
Price QD QS
Surplus/Shortage
$10
200
1600
+ 1400 8
400
1200
+ 800 6
800
0 = EQUILIBRIUM 4
- 800 2
- 1400
DETERMINE THE SUPLUS OR SHORTAGE FOR EACH AMOUNT AT EACH PRICE.
GRAPH BOTH THE QD AND QS ON THE SAME GRAPH.
LABEL EVERYTHING AND MARK THE EQUILBRIUM PRICE.

24. rice

25. Price Ceiling Price Ceiling: maximum legal price that can be charged
Goal is to cap prices to keep items affordable and in demand
In order for a price ceiling to be effective it must be set below the equilibrium price. Why?

26. Price Ceiling Example
In order to protect renters from climbing rental costs, some cities create price ceilings on rent.
So while suppliers may want rent to be $1500 the city controls it at $1100. At this price, it is low enough to raise demand but high enough to generate supply

27. Price Floor Lowest legal price that can be paid for a good or service
Goal is to keep prices higher to ensure production
For a price floor to be effective it must be above the equilibrium price. Why?

28. Price Floor Example Minimum wage
Government sets the lowest wage an employer can pay. This results in employers hiring less workers (increase in costs of input) but also creates a surplus of workers in the market increasing the demand for better workers.
While it may slightly increase unemployment it improves the overall work force.

29. Review Page 148 – Reviewing Key Terms #s 1-5
- Reviewing the Facts # 4 and 6

30. Economic Model Project
Construct an economic model by following these steps:
1. Select a product and list the kinds of inputs and their costs required in the producer’s manufacturing. (hypotheticals)
2. Construct a hypothetical supply curve for the product
3. Determine the demand elasticity for the product: Does it have many substitutes? Can its purchase be postponed? Does it consume much income?
4. Construct a demand curve and combine with a supply curve in a single graph. This is your economic model.
5. Finally, make reasonable predictions about the future price of your product.