Unit 2: Supply, Demand, and Consumer Choice

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Review

• 1. What is the law of demand?

2

LAW OF SUPPLYAs Price Falls…

…Quantity Supplied Increases As Price Rises…

…Quantity Supplied Decreases

3

Supply

4

Supply DefinedWhat 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 Lawns5

EXAMPLE: Mowing Lawns

6

Example of SupplyYou own a lawn mower and you are

willing to mow lawns. How many lawns will you mow at these prices?

Price per hour

Quantity

SuppliedSupply Schedule

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$1$5

$20$50

$100$1000

GRAPHING SUPPLY

Qo

$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

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PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

9

GRAPHING SUPPLY

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

10

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

GRAPHING SUPPLY

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

11

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if new

firms start making

cereal?

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

12

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

13

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

14

PriceQuantity

Supplied

$5 50 70

$4 40 60

$3 30 50

$2 20 40

$1 10 30

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

15

SupplyS2

PriceQuantity

Supplied

$5 50 70

$4 40 60

$3 30 50

$2 20 40

$1 10 30

Increase in SupplyPrices didn’t change but

there is MORE cereal produced

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

16

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if there was

no rain and the

crops died?

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Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

18

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

19

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

20

PriceQuantity

Supplied

$5 50 30

$4 40 20

$3 30 10

$2 20 1

$1 10 0

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

21

SupplyS2

PriceQuantity

Supplied

$5 50 30

$4 40 20

$3 30 10

$2 20 1

$1 10 0

Decrease in SupplyPrices didn’t change but

there is LESS cereal produced

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply Schedule

10 20 30 40 50 60 70 80

22

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if cereal companies

find a faster way to make

cereal ?

Changes in Supply Curve

• The changes can be• Movement along Supply Curve• Shifts of Supply Curve

5 Changers (SHIFTERS) of Supply1. Change in the cost of factors of

production (resources)2. Change in the price of related goods3. 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.

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Price of Related GoodsPrice of Related Goods

Complementary Products

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Substitutes and complements

Substitutes can satisfy the same want Complements are in joint demand

or

or

or

Weather

Expectations of future prices changes• If consumers expect prices ↑ Demand ↑ now

• If consumers expect prices ↓ Demand ↓ now.

Other Factors

Supply PracticeFirst, identify the determinant (shifter) then

decide if supply will increase or decrease

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ShifterIncrease or Decrease

Left or Right

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2

3

4

5

6

Supply Practice

RICE1. A disease kills 40% of rice in China 2. The price of noodles increase 30%3. Government increases tax for rice producers4. New rice technology cuts production time in half5. 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?

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Vocabulary

• 5 Shifters of supply

• Related goods1. Substitute goods

2. Complementary goods

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Homework activity

• Activity 2.15 pg 55• Activity 2.18 pg 59

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