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

2. Review 1. What is the law of demand? 2

3. LAW OF SUPPLY As Price Falls… …Quantity Supplied Increases As Price Rises… …Quantity Supplied Decreases 3

4. Supply 4

5. 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 relationship between price and quantity supplied. (price and quantity supplied go the same direction) As P increases, the Q producers make increases As P decreases, the Q producers make decreases. Why? Because, higher prices = higher profit. Firms have an incentive to produce more. EXAMPLE: Mowing Lawns 5

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7. Example of Supply You own a lawn mower and you are willing to mow lawns. How many lawns will you mow at these prices? Price per hour Quantity Supplied Supply Schedule 7 $1 $5 $20 $50 $100 $1000

8. 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 8 Price Quantity Supplied $550 $440 $330 $220 $110

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10. 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 10 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

11. 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 11 Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if new firms start making cereal?

12. 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 12 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

13. 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 13 Price Quantity Supplied $550 $440 $330 $220 $110 Supply

14. 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 14 Price Quantity Supplied $55070 $44060 $33050 $22040 $110 30 Supply

15. 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 15 Supply S2S2 Price Quantity Supplied $55070 $44060 $33050 $22040 $110 30 Increase in Supply Prices didn’t change but there is MORE cereal produced

16. 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 16 Price Quantity Supplied $550 $440 $330 $220 $110 Supply What if there was no rain and the crops died?

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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 $55030 $44020 $33010 $2201 $110 0 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 $55030 $44020 $33010 $2201 $110 0 Decrease in Supply Prices didn’t change but there is LESS 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 cereal companies find a faster way to make cereal ?

23. Changes in Supply Curve The changes can be Movement along Supply Curve Shifts of Supply Curve

24. 5 Changers (SHIFTERS) of Supply 1.Change in the cost of factors of production (resources) 2.Change in the price of related goods 3.New Technology 4.Business expectations of the future 5.Other factors, Weather, war, tax, etc.) Changes in PRICE don’t shift the curve. It only causes movement along the curve. 24

25. Price of Related Goods

26. Complementary Products 26

27. 27 Substitutes and complements Substitutes can satisfy the same want Complements are in joint demand or

28. Weather Expectations of future prices changes If consumers expect prices ↑  D emand ↑ now If consumers expect prices ↓  D emand ↓ no w. Other Factors

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 RICE 1.A disease kills 40% of rice in China 2.The price of noodles increase 30% 3.Government increases tax for rice producers 4.New rice technology cuts production time in half 5.Minimum wage of workers increases to $15/hour 1.Which SUPPLY SHIFTER? 2.Supply will Increase or decrease? 3.Which the curve will curve shift in or out? 30

31. Vocabulary 5 Shifters of supply Related goods 1.Substitute goods 2.Complementary goods 31

32. Homework activity Activity 2.15 pg 55 Activity 2.18 pg 59 32