1. Supply curves Originate with individual firm’s marginal cost curve
What causes a change in supply?

2. Supply Shift from Cost S1
Cost
MC2 S2
MC1 P1 P2 D Q1 Q2 Q Q1 Q2 Q

3. Steps to shift curves The impact changes the MC curve of the firm.
The firm chooses output so that MC = MR.
Market supply shifts.
Price moves along demand curve to new level.
Repeat steps

4. S&D Analysis to Evaluate Market Programs
What are the objectives?
What are the impacts?
Winners and losers
Deadweight loss

5. Consumer Surplus
The difference between what consumers actually paid for a given quantity and the maximum amount the would have paid on an individual basis.
Area above equilibrium price and below the demand curve P P0 D Q

6. Producer Surplus
The difference between what producers actually received for a given quantity and the minimum they would have accepted on an individual basis. P
Area below equilibrium price and above the supply curve P0 D Q

7. S & D Analysis P S CS Pe PS D Q Qe

8. New Technology P S1 a S2 P1 b c d P2 g f e D Q1 Q2 Q

9. New Sales Tax P S T Pc a b P1 c d Pp D1 D2 Q2 Q1 Q

10. Price controls S Who holds the surplus? P Surplus Pf Pe
How will the shortage be filled? Pc
Shortage D Q Qe

11. Price controls S P Pf c a b g Pe e d f Pc D Q1 Q2 Q Qe

12. Price Rationing
Prices adjust to match quantity demand to available supply.
Short run supply is fixed
Consumers switch to subs
Producers try to alter supply

13. Price and Costs in Ag Short run Long run
Not necessarily a relationship between cost and price
May be profit or loss
Long run
Firms expand output to profits and reduce output to losses
Average price = ATC

14. Law of One Price
Definition: Under competitive market conditions all prices within a market are uniform after taking into account the cost of adding place, time, and form utility.

15. Law of One Price Reason: arbitrage Examples Profit seeking individuals
Buy low and sell high for profit
Examples
Transportation
Storage
Processing

16. Law of One Price SB SA PB PA DB DA QA QB