CHAPTER 4SUPPLY AND

PRICES

CHAPTER OBJECTIVES: Identify how producers & product

availability influence pricing Analyze how the agreement between

buyers & sellers set prices in the market 4A Objectives:

Define supply Define the law of supply Explain how changes occur in supply And my God will meet all your needs

according to his glorious riches in Christ Jesus. (Philippians 4:19)

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Supply, demand & priceBefore?

After?

SUPPLY Supply: “the amount of goods &

services business firms are willing & able to provide at different prices.” (65)

Law of supply: the higher the price consumers are willing to pay, the greater the quantity a firm will produce AND the lower the price consumers will pay, the smaller the quantity a firm will produce (65)

Supply schedule: “a tabular model noting the quantities of an item that suppliers are willing to produce at various prices.” (332)

Supply curve: a graph of the information from the supply schedule

Change in quantity supplied: when a change in price changes the number of units supplied

Change in supply: the supply curve shifts as producers are willing to produce more (or less) of an item regardless of price.

Decrease in supply =leftward shift Increase in supply =rightward shift

Go to WB p29

3 FACTORS THAT LEAD TO A CHANGE IN SUPPLY 1. Changes in technology Improvements can either replace labor

which reduces costs OR allow more items to be produced—the price could stay the same OR the company can produce the same amount at a lower price.

2. Change in production costs: If production cost go up a company

needs to “decrease the quantity of what it provides at the same price.” (68)

3. Changes in the prices of related goods:

When the price people are willing to pay for a substitute rises, businesses are willing to sell more of it and may even decrease their production of the original product even though the price hasn’t changed. (71)

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WANT, WANT, WANT!!!

And my God will meet all your needs according to his glorious riches in Christ Jesus. (Philippians 4:19)

4B: DETERMINING PRICES Objectives: Explain the existence of the market

equilibrium point Describe the causes of surplus &

shortage Explain how the free market works to

alleviate a surplus or shortage

Market equilibrium point: “the point at which the demand curve & the supply curve for an item intersect” (329)

Market equilibrium price: “the price corresponding to the intersection of an item’s supply & demand curve; the price at which consumers are willing to buy the same quantity that suppliers are willing to produce” (329)

Surplus: “an excess of unsold products resulting from a price above the market equilibrium price” (332)

Price floor: “a barrier preventing the price of an item from falling lower than a certain price” (330)

Shortage: “an insufficient supply of an item as a result of a price below the market equilibrium price” (331)

Price ceilings: “a barrier preventing the price of an item from rising above a certain price” (330) [rent in large cities]