1. Market Supply and Price Determination
4-1
The Law of Supply
4-2
Shifts in the Supply Curve
4-3
The Free Market Price
4-4
Role of Government in a Free Market System

2. The Law of Supply 4-1 LO1-1 Explain the law of supply. LO1-2
Understand the difference between an individual and a market supply curve.

3. The Law of Supply 4-1 The Supply Curve supply quantity supplied
supply schedule
supply curve
Market Supply
individual supply curve
market supply curve

4. The Supply Curve
Supply is the relationship between the price and quantity supplied for a good or service.
Based on the assumption that other variables remain unchanged.
Quantity supplied is the amount of goods or services sellers offer for sale at a given price.
4-1 The Law of Supply

5. The Supply Curve
The law of supply states there is a direct relationship between the price of a good and the quantity sellers offer for sale.
Sellers have a profit incentive to charge higher prices.
At a higher price, suppliers devote more resources to a product, which results in a greater quantity supplied.
4-1 The Law of Supply

6. The Supply Curve
A supply schedule is a table the lists quantity of a good or service sellers offer for sale a possible prices.
A supply curve is formed by the line connecting possible price and quantity supplied responses of sellers.
Allows you to find the quantity demanded at each possible selling price.
4-1 The Law of Supply

7. An individual supply curve is the supply curve for a single seller.
Market Supply
An individual supply curve is the supply curve for a single seller.
A market supply curve is the sum of all individual supply curves in a market.
7-1 Own Your Own Business

8. Shifts in the Supply Curve
4-2
Shifts in the Supply Curve
LO 2-1
Explain the difference between changes in quantity supplied and changes in supply.
LO 2-2
Identify supply shifters factors that cause changes in supply.

9. Shifts in the Supply Curve
4-2
Shifts in the Supply Curve
Difference Between Changes in Quantity Supplied and Changes in Supply
change in quantity supplied
change in supply
Supply Shifter Factors
excise tax
subsidy

10. Change in quantity supplied results solely from a change in price.
Difference Between Changes in Quantity Supplied and Changes in Supply
Change in quantity supplied results solely from a change in price.
a movement between points along a stationary supply curve
Change is based on assumption that all other supply shifter factors remain constant.
A chance in supply is an increase (rightward shift) or a decrease (leftward shift) in the quantity supplied at each price.
4-2 Shifts in the Supply Curve

11. Supply Shifter Factors
Excise tax is a tax paid by the seller on the production or sale of a good or service.
A subsidy is a payment from the government to support a business that reduces its costs.
4-2 Shifts in the Supply Curve

12. The Free Market Price 4-3 LO 3-1
Understand how a free market determines equilibrium prices.
LO 3-2
Analyze how changes to demand and supply affect the equilibrium price.

13. The Free Market Price 4-3 Free Market Equilibrium surplus shortage
disequilibrium
equilibrium
Changes in Market Equilibrium

14. Free Market Equilibrium
Surplus occurs at any price at which the quantity supplied is greater than the quantity demanded.
Shortage occurs at any price at which the quantity supplied is less than the quantity demanded.
4-3 The Free Market Price

15. Free Market Equilibrium
Disequilibrium occurs at a market price at which the quantity demanded does not equal the quantity supplied.
Equilibrium occurs at a price at which the quantity demanded and the quantity supplied at equal.
4-3 The Free Market Price

16. Changes in Market Equilibrium
An increase in demand causes both the equilibrium price and the equilibrium quantity to increase.
Unwanted inventory forces a reduction in price and quantity supplied, which causes the equilibrium price and quantity to fall.
4-3 The Free Market Price

17. Change in Market Equilibrium
When demand increases, the equilibrium price and equilibrium quantity increase.
When demand decreases, the equilibrium price and equilibrium quantity decrease.
When supply increases, the equilibrium price decreases and equilibrium quantity increases.
When supply decreases, the equilibrium price increases and equilibrium quantity decreases.
4-3 The Free Market Price

18. Role of Government in a Free Market System
4-4
LO 4-1
Understand the effect of price ceilings and price floors on a market.
LO 4-2
Discuss government regulation and deregulation in the U.S. free market system.

19. Role of Government in a Free Market System
4-4
Can the Laws of Supply and Demand Be Repealed?
price ceiling
rent control
price floor
minimum wage
Regulation of the Free Market System
regulation
deregulation

20. A rent control is a price ceiling place by the government on rent.
Can the Laws of Supply and Demand Be Repealed?
A price ceiling is a legally established highest price a seller can charge for a good or service.
A rent control is a price ceiling place by the government on rent.
4-4 Role of Government in a Free Market System

21. Can the Laws of Supply and Demand Be Repealed?
A price floor is a legally established lowest price a seller can charge for a good or service.
A minimum wage is a legally established lowest hourly wage rate that can be paid to workers.
4-4 Role of Government in a Free Market System

22. Regulation of the Free Market System
A regulation is a government rule or law designed to control business. The following are regulated:
Food quality
Activities that impact the environment
Airline safety
Most industries deal with some form of regulation.
4-4 Role of Government in a Free Market System

23. Regulation of the Free Market System
Deregulation is the removal of government restrictions or controls on a market.
Higher production costs the resulting from regulation led to the movement toward deregulation in the late 1970s and 1980s.
The primary industries impacted was transportation and telecommunications.
Successful deregulation should result in a decline in the average price of a service with an increase in the volume and variety of that service.
4-4 Role of Government in a Free Market System