Quiz ReturnedLaw of SupplyHomeworkSupply and DemandWorksheet Homework

Read Naked Economics, Chapter 1Review Powerpoint for next class (online)Read “Current Reading Assignment” (online)

QUIZ RETURNED

Law of Supply

When price increase, the quantity supplied increases.

When price decreases, the quantity supplied decreases.

P Qs , P Qs

A direct relationship.

A Supply Schedule is a table that relates Price (the driver) to Quantity supplied (the responder)

P QsThis is a Supply Schedule

The Law of Supply can be represented graphically

Price

Supply Curve

Quantity

Why does the Supply curve go “low to high”?

Because when price is high, quantity supplied is highAnd when price is low, quantity supplied is low.

Shifts of the Supply Curve

Price

Quantity

Supply Curve

Decrease

Increase

I = R, D = L still applies

ELASTICITY OF SUPPLY How sensitive are suppliers to a

change in price P Qs = Elastic Supply

P Qs = Inelastic Supply

Remember…Law of Supply still applies

Length of time to produce the good or service is the main determinant of the elasticity of supply

The longer it takes to produce the good or service, the more inelastic.

Helpful Hint…Inelastic is the long word and that takes a long time to produce

Supply curves, elastic and inelastic

Price

Quantity

Inelastic Long time to produce Ex. Airplanes, gasoline, wine

Elastic Short time to produce Ex. Hamburgers, bottled water, music files

Questions on supply

1. What is the law of supply?(a) the lower the price, the larger the quantity supplied(b) the higher the price, the larger the quantity supplied(c) the higher the price, the smaller the quantity supplied(d) the lower the price, the more manufacturers will produce the good

2. What happens when the price of a good down?(a) existing producers will expand and some new producers will enter

the market(b) some producers will produce less and others will drop out of the

market(c) existing firms will continue their usual output but will earn less(d) new firms will enter the market as older ones drop out

Government Influences on SupplyBy raising or lowering the cost of producing goods, the government can encourage or discourage an entrepreneur or industry.

SubsidiesA subsidy is a government payment that supports a business or market. Subsidies cause the supply of a good to increase.

TaxesThe government can reduce the supply of some goods by placing an excise tax on them. An excise tax is a tax on the production or sale of a good.

RegulationRegulation occurs when the government steps into a market to affect the price, quantity, or quality of a good. Regulation usually raises costs.

Shifts of the Supply Curve

Price

Quantity

Supply CurveTaxes & Regulation

Subsidies

What is the effect on price?

Government Influences on Supply

EXAMPLES?

Subsidies

Taxes

Regulation

Government Influences on Supply

EXAMPLES?

Subsidies…Electric Cars, College education, “green industries”

Taxes…Cigarettes, alcohol, green house gases

Regulation….Cars, Housing

OTHERS?

THREE MINUTE BREAK

http://www.online-stopwatch.com/bomb-countdown/

Supply and Demand

Putting Supply and Demand togetherTake out a piece of paper

Supply and Demand

Putting Supply and Demand together

Price

Quantity

Supply and Demand

Draw a Demand Curve

Price

Quantity

Supply and Demand

Draw a Demand Curve

Price

Quantity

Demand

Supply and Demand

Add a Supply Curve

Price

Quantity

Demand

Supply and Demand

Add a Supply Curve

Price

Quantity

Demand

Supply

Supply and Demand

Reading the graph

Price

Quantity

Demand

Supply

Equilibrium5 Parts toa fully labeledSupply andDemand graph1. Price2. Quantity3. Supply4. Demand5. Equilibrium

Supply and Demand

Equilibrium determines market price and market quantity.

Price

Quantity

Demand

Supply

Equilibrium5 Parts toa fully labeledSupply andDemand graph1. Price2. Quantity3. Supply4. Demand5. Equilibrium

Supply and Demand

Now show the effect of an increase in demand

Price

Quantity

Demand

Supply

Equilibrium

Supply and Demand

Increase shifts the curve to the right (remember…I = R, D = L) and changes the equilibrium (i.e. price and quantity)

Price

Quantity

Demand

Supply

New Equilibrium

Supply and Demand

Increase shifts the curve to the right (I = R, D = L) and changes the equilibrium

(i.e. price and quantity)

Price

Quantity

Demand

Supply

New Equilibrium

Supply and Demand

What was the effect on price and quantity?

Price

Quantity

Demand

Supply

New Equilibrium

Supply and Demand

What was the effect on price and quantity?

Price

Quantity

Demand

Supply

Equilibrium

Student Video

http://www.youtube.com/watch?v=xGRmF8jdAtw

worksheet

Taxes and subsidies

What’s the public benefit that justifies theGovernment’s action (the tax)?

What are the unintended consequences of the Government’s action?

What are other alternatives for the Government to achieve the goal?

Let’s see if we got it…

http://www.wnyc.org/story/101889-morning-coffee-costs-more/

draw a fully labelled (five parts) supply and demand curve explaining what’s going on

Supply and Demand Curve

Shortages and Surpluses

Price

Quantity

Demand

Supply

Equilibrium

SHORTAGE

SHORTAGE = Price BELOWthe equilibrium

price

Supply is less thanDemand.

Shortages and Surpluses

Price

Quantity

Demand

Supply

Equilibrium

SHORTAGE

What happenswhen there

is a shortageof something?

Shortages and Surpluses

Price

Quantity

Demand

Supply

Equilibrium

SURPLUS

SURPLUS = Price ABOVEthe equilibrium

Price.

Demand is less than supply

Shortages and Surpluses

Price

Quantity

Demand

Supply

Equilibrium

SURPLUS

And what happenswhen there is

a surplusof something?

Homework

Review Powerpoint for next class (online)

Read “Current Reading Assignment” (online)

Read Naked Economics, Chapter 1…“Who Feeds Paris?”

Helpful Hint…as you read Chapter One of Naked Economics, ask yourself “How does it relate to Supply and Demand?”

Homework

Read Naked Economics, Chapter One

Helpful Hint…as you read Chapter One, how does it relate to Supply and Demand?