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Unit 2: Supply, Demand, and Consumer Choice 1. Review with your neighbor… 1.Define scarcity 2.Define Economics 3.Identify the relationship between scarcity.

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Presentation on theme: "Unit 2: Supply, Demand, and Consumer Choice 1. Review with your neighbor… 1.Define scarcity 2.Define Economics 3.Identify the relationship between scarcity."— Presentation transcript:

1 Unit 2: Supply, Demand, and Consumer Choice 1

2 Review with your neighbor… 1.Define scarcity 2.Define Economics 3.Identify the relationship between scarcity and choices 4.Explain how Macroeconomics is different than Micro 5.Explain the difference between positive and normative economics 6.Give an example of marginal analysis

3 Economic Terminology 3 Scarcity vs. Shortages Price vs. Cost Investment Consumer Goods Capital Goods

4 Demand Review Part 1 1.Give an example of the law of diminishing marginal utility 2.Explain how the law of diminishing marginal utility causes the law of demand 3.How do you determine the MARKET demand for a particular good? (from reading) 4

5 REVIEW 1.Explain relationship between scarcity and choices 2.What is different between positive & normative 3.What is different between price and cost 4.What is different between consumer and capital goods 5.Give examples of each of the 4 Factors of Production 6.Define trade-offs 7.Define opportunity cost 8.What is different between accounting costs and economic costs 5

6 The Factors of Production 6

7 Trade-offs and Opportunity Cost ALL decisions involve trade-offs. The most desirable alternative given up as a result of a decision is known as opportunity cost. Trade-offs are all the alternatives that we give up whenever we choose one course of action over others. (Examples: going to the movies) What are trade-offs of deciding to go to college? What is the opportunity cost of going to college?

8 Every society must answer three questions: The Three Economic Questions 1.What goods and services should be produced? 2.How should these goods and services be produced? 3.Who consumes these goods and services? The way these questions are answered determines the economic system An economic system is the method used by a society to produce and distribute goods and services. 8

9 What Causes a Shift in Demand? 5 Shifters (changers) of Demand : 1.Tastes and Preferences 2.Related Goods price 3.Income 4.Consumer population 5.Expectations of the future TRICE Changes in PRICE don’t shift the curve. It only causes movement along the curve. 9

10 DEMAND DEFINED What is Demand? What is the Law of Demand? The law of demand states There is an INVERSE relationship between price and quantity demanded 10

11 Scarcity vs. Shortages Shortages occur when producers will not or cannot offer goods or services at current prices. Shortages are temporary. Scarcity occurs at all times for all goods. Price vs. Cost What’s the price? vs. How much does that cost? Price= Amount buyer (or consumer) pays Cost= Amount seller pays to produce a good Investment Investment= the money spent by BUSINESSES to improve their production Ex: $1,000 new computer, $1 Million new factory 11

12 Supply 12

13 Supply Defined What is supply? Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices. What is the Law of Supply? There is a DIRECT (or positive) relationship between price and quantity supplied. As price increases, the quantity producers make increases As price falls, the quantity producers make falls. Why? Because, at higher prices profit seeking firms have an incentive to produce more. EXAMPLE: Mowing Lawns 13

14 Example of Supply You own an lawn mower and you are willing to mow lawns. How many lawns will you mow at these prices? Price per lawn mowed Quantity Supplied Supply Schedule 14 $1 $5 $20 $50 $100 $1000

15 GRAPHING SUPPLY Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 Draw this large in your notes 15 Price Quantity Supplied $550 $440 $330 $220 $110

16 GRAPHING SUPPLY Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 16 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

17 GRAPHING SUPPLY Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 17 Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if new companies start making cereal?

18 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 18 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

19 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 19 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

20 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 20 Price Quantity Supplied $55070 $44060 $33050 $22040 $110 30 Supply

21 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 21 Supply S2S2 Price Quantity Supplied $55070 $44060 $33050 $22040 $110 30 Increase in Supply Prices didn’t change but there is MORE cereal produced

22 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 22 Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if a drought destroys corn and wheat crops?

23 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 23 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

24 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 24 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

25 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 25 Price Quantity Supplied $55030 $44020 $33010 $2201 $110 0 Supply

26 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 26 Supply S2S2 Price Quantity Supplied $55030 $44020 $33010 $2201 $110 0 Decrease in Supply Prices didn’t change but there is LESS cereal produced

27 Change in Supply Q o $5 4 3 2 1 Price of Cereal Quantity of Cereal Supply Schedule 10 20 30 40 50 60 70 80 27 Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if cereal companies find a quicker way to make cereal ?

28 6 Determinants (SHIFTERS) of Supply 1.Prices/Availability of inputs (resources) 2.Number of Sellers 3.Technology 4.Government Action: Taxes & Subsidies 5. Opportunity Cost of Alternative Production 6. Expectations of Future Profit Changes in PRICE don’t shift the curve. It only causes movement along the curve. 28

29 Supply Practice First, identify the determinant (shifter) then decide if supply will increase or decrease 29 Shifter Increase or Decrease Left or Right 1 2 3 4 5 6

30 Supply Practice Hamburgers 1.Mad cow disease kills 20% of cows 2.Price of burgers increase 30% 3.Government taxes burger producers 4.Restaurants can produce burgers and/or tacos. A demand increase causes the price for tacos to increase 500% 5.New bun baking technology cuts production time in half 6.Minimum wage increases to $10 1.Which determinant (SHIFTER)? 2.Increase or decrease? 3.Which direction will curve shift? 30

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