1. AGENDA
Peer grade elasticity worksheet
Intro to supply

2. Determinants of elasticity:
Can the purchase be delayed?
If purchase cannot be delayed, demand is inelastic
If purchase can be delayed, demand is elastic
Necessities – insulin.

3. Determinants of elasticity:
Are adequate substitutes available?
If yes, consumers can switch back and forth to take advantage of the best price
The fewer the substitutes, the more inelastic demand
The more substitutes a product may have, the more elastic demand
Necessities – insulin.

4. Determinants of elasticity:
Does the purchase use a large portion of income?
If yes, demand tends to be elastic
If no, demand tends to be inelastic
Medical services tend to be inelastic, even though they take a large portion of income…WHY?
Necessities – insulin.

5. HOMEWORK Insulin Gas at a particular station Corn Gas in general
Inelastic
Corn
Gas in general
Elastic
Tobacco
Funeral services
Depends – are you addicted? Can be inelastic if so!

6. HOMEWORK Airline tickets to vacation resorts Clean water Butter
Depends – are you in a developing country? If so, then inelastic
Elastic
Butter
elastic
Expensive cars
Medical care
Inelastic
Milk

7. You’re starting a new business
You’re starting a new business. How might you set your prices, knowing the idea behind demand elasticity?
If you’re a new business – you really need to know this becaue if you get the price wrong, you’ll f it up. Principles or rules of thumb – steep = inelastic, shallow = elastic. If it’s 1/1 or 45 degree angle, it’s unit elastic. Example – concert promoter at a venue. The room holds 800, if you sell tickets at 20, you’ll sell 600, if you sell it at 15, you’ll sell 800. And – they make the same amount of money – that’s a unit elastic situation. Price still matters – you want to sell 800 seats at 15 each – there are complementary products – if there are more people, youll sell more shirts and cds and beer etc.

8. Revenue and Elasticity
The elasticity of demand determines how a change in prices will affect a firm’s total revenue (income)
Total revenue is the total amount of money they collect from selling it’s good or service
Firms must be aware of elasticity for their product
If a good has an elastic demand, raising prices may actually decrease their total revenue…WHY?
Necessities – insulin.

9. Partner quiz!
It’s fill in the blank. You can do it.

10. SUPPLY Supply curves are mirror images to demand curves
Change in quantity supplied
Change in supply
Supply = amount of a product offered for sale at all possible prices

11. SUPPLY What’s the Law of Demand? Predict: what’s the Law of Supply?
When price increases, quantity demanded decreases
Predict: what’s the Law of Supply?
Suppliers will offer more for sale at high prices and less at lower prices
As price increases, the quantity supplied increases
Suppliers are incentivized by profit, so as the price goes up, so does their potential product – so they’ll sell more

12. SUPPLY Example: teaching extra classes
What might my attitude be like if I taught the class for the dismal amount he offered?
How would that change if I was making $20,000 to teach that class?
If ryan comes up to me and asks me to teach six classes instead of five, what are my possible options – yes and no. why might I say yes? Why might I say no? But, if he says that I’ll get paid $20,000 to teach an extra class. H

13. SUPPLY Example: freshmen failures
Ryan sees the freshman class struggling with grades, and comes up with a solution: Ask the smartest seniors, who scored a 26.1 on the ACT, to help the freshmen
Work around your schedule – before/after school, weekends, off periods, totally flexible
How many of y’all would do it?
Silva is under pressure to improve the standarzied test scores of incoming freshmen… but…. The seniors scored the highest average score on the SAT. Silva asks seniors to tutor freshman – and will work around their schedule –before/after/weekends/off etc, total flexible – if they’d volunteer to do it. So: totally honest – based on your circumstances (commitments or not) – if he gave you this offer, how many hours a week do you think you’d offer to tutor freshmen? Write it down. Then, poll the class. Some will say zero, some will say 2ish – why? I like the school. I like Mr. Silva. Etc. CHANGE THE SCENARIO. But, this time,Silva says the PTA has scraped together some money, and for every hour you’d volunteer, you’d get $5. Then, write down the number and poll the kids. Some things won’t change at all, but some people will more inclined to do so. THEN RAISE IT. $10. $15. $20. $50. Keep polling the students. The numbers are bigge r- at $50 an hour, they’ll do it more – will they ditch classes to tutor freshman? Haha! What they just indicated is the law of supply – the higher the price of the good ro service, the more changes you’re willing to make in your life to offer that good or service. The opportunity cost is too great when the price is $5. As price goes up, quantity supplied goes up.

14. SUPPLY Example: freshmen failures
Ryan scrapes together some money, and is willing to give you $5/hr to tutor
Now how many?
Silva is under pressure to improve the standarzied test scores of incoming freshmen… but…. The seniors scored the highest average score on the SAT. Silva asks seniors to tutor freshman – and will work around their schedule –before/after/weekends/off etc, total flexible – if they’d volunteer to do it. So: totally honest – based on your circumstances (commitments or not) – if he gave you this offer, how many hours a week do you think you’d offer to tutor freshmen? Write it down. Then, poll the class. Some will say zero, some will say 2ish – why? I like the school. I like Mr. Silva. Etc. CHANGE THE SCENARIO. But, this time,Silva says the PTA has scraped together some money, and for every hour you’d volunteer, you’d get $5. Then, write down the number and poll the kids. Some things won’t change at all, but some people will more inclined to do so. THEN RAISE IT. $10. $15. $20. $50. Keep polling the students. The numbers are bigge r- at $50 an hour, they’ll do it more – will they ditch classes to tutor freshman? Haha! What they just indicated is the law of supply – the higher the price of the good ro service, the more changes you’re willing to make in your life to offer that good or service. The opportunity cost is too great when the price is $5. As price goes up, quantity supplied goes up.

15. SUPPLY Example: freshmen failures
Ryan scrapes together some money, and is willing to give you $10/hr to tutor
Now how many?
Silva is under pressure to improve the standarzied test scores of incoming freshmen… but…. The seniors scored the highest average score on the SAT. Silva asks seniors to tutor freshman – and will work around their schedule –before/after/weekends/off etc, total flexible – if they’d volunteer to do it. So: totally honest – based on your circumstances (commitments or not) – if he gave you this offer, how many hours a week do you think you’d offer to tutor freshmen? Write it down. Then, poll the class. Some will say zero, some will say 2ish – why? I like the school. I like Mr. Silva. Etc. CHANGE THE SCENARIO. But, this time,Silva says the PTA has scraped together some money, and for every hour you’d volunteer, you’d get $5. Then, write down the number and poll the kids. Some things won’t change at all, but some people will more inclined to do so. THEN RAISE IT. $10. $15. $20. $50. Keep polling the students. The numbers are bigge r- at $50 an hour, they’ll do it more – will they ditch classes to tutor freshman? Haha! What they just indicated is the law of supply – the higher the price of the good ro service, the more changes you’re willing to make in your life to offer that good or service. The opportunity cost is too great when the price is $5. As price goes up, quantity supplied goes up.

16. SUPPLY Example: freshmen failures
Ryan scrapes together some money, and is willing to give you $15/hr to tutor
Now how many?
Silva is under pressure to improve the standarzied test scores of incoming freshmen… but…. The seniors scored the highest average score on the SAT. Silva asks seniors to tutor freshman – and will work around their schedule –before/after/weekends/off etc, total flexible – if they’d volunteer to do it. So: totally honest – based on your circumstances (commitments or not) – if he gave you this offer, how many hours a week do you think you’d offer to tutor freshmen? Write it down. Then, poll the class. Some will say zero, some will say 2ish – why? I like the school. I like Mr. Silva. Etc. CHANGE THE SCENARIO. But, this time,Silva says the PTA has scraped together some money, and for every hour you’d volunteer, you’d get $5. Then, write down the number and poll the kids. Some things won’t change at all, but some people will more inclined to do so. THEN RAISE IT. $10. $15. $20. $50. Keep polling the students. The numbers are bigge r- at $50 an hour, they’ll do it more – will they ditch classes to tutor freshman? Haha! What they just indicated is the law of supply – the higher the price of the good ro service, the more changes you’re willing to make in your life to offer that good or service. The opportunity cost is too great when the price is $5. As price goes up, quantity supplied goes up.

17. SUPPLY Example: freshmen failures
Ryan scrapes together some money, and is willing to give you $20/hr to tutor
Now how many?
Silva is under pressure to improve the standarzied test scores of incoming freshmen… but…. The seniors scored the highest average score on the SAT. Silva asks seniors to tutor freshman – and will work around their schedule –before/after/weekends/off etc, total flexible – if they’d volunteer to do it. So: totally honest – based on your circumstances (commitments or not) – if he gave you this offer, how many hours a week do you think you’d offer to tutor freshmen? Write it down. Then, poll the class. Some will say zero, some will say 2ish – why? I like the school. I like Mr. Silva. Etc. CHANGE THE SCENARIO. But, this time,Silva says the PTA has scraped together some money, and for every hour you’d volunteer, you’d get $5. Then, write down the number and poll the kids. Some things won’t change at all, but some people will more inclined to do so. THEN RAISE IT. $10. $15. $20. $50. Keep polling the students. The numbers are bigge r- at $50 an hour, they’ll do it more – will they ditch classes to tutor freshman? Haha! What they just indicated is the law of supply – the higher the price of the good ro service, the more changes you’re willing to make in your life to offer that good or service. The opportunity cost is too great when the price is $5. As price goes up, quantity supplied goes up.

18. SUPPLY Example: freshmen failures
Ryan scrapes together some money, and is willing to give you $50/hr to tutor
Now how many?
Silva is under pressure to improve the standarzied test scores of incoming freshmen… but…. The seniors scored the highest average score on the SAT. Silva asks seniors to tutor freshman – and will work around their schedule –before/after/weekends/off etc, total flexible – if they’d volunteer to do it. So: totally honest – based on your circumstances (commitments or not) – if he gave you this offer, how many hours a week do you think you’d offer to tutor freshmen? Write it down. Then, poll the class. Some will say zero, some will say 2ish – why? I like the school. I like Mr. Silva. Etc. CHANGE THE SCENARIO. But, this time,Silva says the PTA has scraped together some money, and for every hour you’d volunteer, you’d get $5. Then, write down the number and poll the kids. Some things won’t change at all, but some people will more inclined to do so. THEN RAISE IT. $10. $15. $20. $50. Keep polling the students. The numbers are bigge r- at $50 an hour, they’ll do it more – will they ditch classes to tutor freshman? Haha! What they just indicated is the law of supply – the higher the price of the good ro service, the more changes you’re willing to make in your life to offer that good or service. The opportunity cost is too great when the price is $5. As price goes up, quantity supplied goes up.

19. SUPPLY
The higher the price of the good or service, the more changes you’re willing to make in your life
When the price was $0, few wanted to do it. When the price raised to $50, everyone wanted to do it.
Silva is under pressure to improve the standarzied test scores of incoming freshmen… but…. The seniors scored the highest average score on the SAT. Silva asks seniors to tutor freshman – and will work around their schedule –before/after/weekends/off etc, total flexible – if they’d volunteer to do it. So: totally honest – based on your circumstances (commitments or not) – if he gave you this offer, how many hours a week do you think you’d offer to tutor freshmen? Write it down. Then, poll the class. Some will say zero, some will say 2ish – why? I like the school. I like Mr. Silva. Etc. CHANGE THE SCENARIO. But, this time,Silva says the PTA has scraped together some money, and for every hour you’d volunteer, you’d get $5. Then, write down the number and poll the kids. Some things won’t change at all, but some people will more inclined to do so. THEN RAISE IT. $10. $15. $20. $50. Keep polling the students. The numbers are bigge r- at $50 an hour, they’ll do it more – will they ditch classes to tutor freshman? Haha! What they just indicated is the law of supply – the higher the price of the good ro service, the more changes you’re willing to make in your life to offer that good or service. The opportunity cost is too great when the price is $5. As price goes up, quantity supplied goes up.

20. SUPPLY For the supplier, profit = revenue – cost
X is coming in, Y is going out – profit the difference between the two
Your incentive as a seller is to maximize profits
How do you do this?
Two ways:
Increasing revenue
Reducing production costs

21. Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $32 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10
Demand o Q
Quantity of Cereal 21

22. companies start making
GRAPHING SUPPLY
Supply Schedule
What if new
companies start making
cereal?
Price of Cereal
Supply $5 4 3 2 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q
Quantity of Cereal 22

23. Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $32 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10
Demand o Q
Quantity of Cereal 23

24. Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $32 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10
Demand o Q
Quantity of Cereal 24

25. Change in Supply Supply Schedule Price of Cereal Supply $5 70 $4 60 $32 1
Price
Quantity
Supplied $5 70 $4 60 $3 50 $2 40 $1
10 30
Demand o Q
Quantity of Cereal 25

26. Prices didn’t change but there is MORE cereal produced
Change in Supply
Supply Schedule
Price of Cereal
Supply S1 $5 4 3 2 1
Price
Quantity
Supplied $5 70 $4 60 $3 50 $2 40 $1
10 30
Increase in Supply
Prices didn’t change but there is MORE cereal produced
Demand o Q
Quantity of Cereal 26

27. destroys corn and wheat
Change in Supply
Supply Schedule
What if a drought
destroys corn and wheat
crops?
Price of Cereal
Supply $5 4 3 2 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q
Quantity of Cereal 27

28. Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $32 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10
Demand o Q
Quantity of Cereal 28

29. Change in Supply Supply Schedule Price of Cereal Supply $5 50 $4 40 $32 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10
Demand o Q
Quantity of Cereal 29

30. Change in Supply Supply Schedule Price of Cereal Supply $5 30 $4 20 $31
Price
Quantity
Supplied $5 30 $4 20 $3 10 $2 1 $1
10 0
Demand o Q
Quantity of Cereal 30

31. Prices didn’t change but there is LESS cereal produced
Change in Supply
Supply Schedule
Price of Cereal
Supply S1 $5 4 3 2 1
Price
Quantity
Supplied $5 30 $4 20 $3 10 $2 1 $1
10 0
Decrease in Supply
Prices didn’t change but there is LESS cereal produced
Demand o Q
Quantity of Cereal 31

32. What if cereal companies find a quicker way to make
Change in Supply
Supply Schedule
What if cereal companies
find a quicker way to make
cereal?
Price of Cereal
Supply $5 4 3 2 1
Price
Quantity
Supplied $5 50 $4 40 $3 30 $2 20 $1 10 o Q
Quantity of Cereal 32

33. JUST LIKE WITH DEMAND… A change in price alone can never change supply
Changes in PRICE don’t shift the curve. It only causes movement along the curve.

34. SHIFTING THE SUPPLY CURVE
Productivity
Expectations for profit
Technology
Taxes and Subsidies
Input costs
Number of sellers
Government regulations

35. Productivity
Associated with labor – the amount of work you get out of a laborer (or machine)
Workers cost X and produce Y
How can you increase production without having to hire more workers?

36. Expectations for Profit
If a company believes that its product price will raise in the future, they may make plans now to produce more later on – and vice versa
Example?

37. Technology New technology increases productivity
Buying new capital that performs the same task at a higher rate
Can you have technology that will shift the supply curve to the left?
Yeah – what if employees don’t know how to use the new technology? OR maybe your new tech breaks down all the time?

38. Taxes and subsidies Taxes, like labor, is a cost of production
If taxes increase, cost of production increases, and the supply curve will shift to the left
If taxes decrease, cost of production will decrease, supply will shift to the right

39. Input costs Aka, costs of resources!
The supply curve is where it is because of costs
Say you open up a pizza shop. What factors of production go in to you making your pizza?
Flour, yeast, tomatoes, mozerella, ovens, delivery drives - what happens if the cost of one of these increases? You’re less willing to supply that same pizza for the same price

40. Number of sellers
If more people who sell the same product enter the market, the supply curve will shift right
If those companies fail, and leave the market, the supply curve will shift left
How does the Internet affect the number of sellers?

41. Governmental regulations
Increased government regulations restrict supply, causing the supply curve to shift left
Decreased government regulations allow producers to lower the cost of production, which shifts the curve to the right
Example? Requiring cars to have something?

42. Supply Practice: Hamburgers
Which determinant (SHIFTER)?
Increase or decrease?
Which direction will curve shift?
Supply Practice: Hamburgers
Mad cow disease kills 20% of cows
Price of hamburgers increase 30%
Government taxes burger producers
Restaurants can produce burgers and/or tacos. A demand increase causes the price for tacos to increase 500%
New bun baking technology cuts production time in half
Minimum wage increases to $20
Decrease in availability of resources, decrease.
Price doesn’t shift curve, no shift.
Government action, decrease.
Opportunity cost of alternative production, decrease.
Technology, increase.
Price of resources, decrease.