Chapter 7, Sections 3 and Chapter 7, Sections 3 and 44

The Law of Supply and the Supply The Law of Supply and the Supply Curve; Putting Supply and Curve; Putting Supply and

Demand TogetherDemand Together

Break into groups of 2Break into groups of 2

1.1. You are a supplier, what are you supplying? You are a supplier, what are you supplying? What is the name of your company? What is the name of your company?

2.2. Under normal economic conditions, for how Under normal economic conditions, for how much would you sell one item of your good much would you sell one item of your good or service?or service?

3.3. Under normal economic conditions, how Under normal economic conditions, how many units of your good or service would many units of your good or service would you create in 1 day?you create in 1 day?

Supply activity continuedSupply activity continued

4.4. Chart this point on a graph – with price on the y-axis Chart this point on a graph – with price on the y-axis and Quantity supplied on the x-axisand Quantity supplied on the x-axis

5.5. Now, imagine the price for this good or service Now, imagine the price for this good or service increased by $5 per item, how many items would you increased by $5 per item, how many items would you now produce in 1 day? Chart this point on your now produce in 1 day? Chart this point on your graph.graph.

6.6. Finally, imagine the price for this good or service Finally, imagine the price for this good or service decreased by $5 (or less if your original sales price is decreased by $5 (or less if your original sales price is < $5). How many items would you produce in 1 day? < $5). How many items would you produce in 1 day? Chart this point and draw a line through your 3 Chart this point and draw a line through your 3 points.points.

Supply Activity Cont.Supply Activity Cont.

7.7. Looking at your chart, with respect to price Looking at your chart, with respect to price and quantity supplied, what do you think the and quantity supplied, what do you think the Law of Supply states?Law of Supply states?-hint: do price and q supplied move in the -hint: do price and q supplied move in the same or opposite directions?same or opposite directions?

8.8. What are some factors, other than price of What are some factors, other than price of the product you are selling, that would affect the product you are selling, that would affect the amount of goods or services you are the amount of goods or services you are able to supply?able to supply?

SupplySupply

Law of Supply: Economic Rule stating that Law of Supply: Economic Rule stating that price and quantity supplied move in the price and quantity supplied move in the same direction.same direction. As the price rises for a good, the quantity As the price rises for a good, the quantity

supplied generally risessupplied generally rises As the price falls, the quantity supplied also As the price falls, the quantity supplied also

fallsfalls

Quantity SuppliedQuantity Supplied

The amount of a good or service that a The amount of a good or service that a producer is willing and able to supply at a producer is willing and able to supply at a specific price.specific price.

Supply ScheduleSupply Schedule Table showing quantity supplied at different Table showing quantity supplied at different

possible pricespossible prices

Price per CDPrice per CD Q supplied (millions)Q supplied (millions)

$20$20 1,1001,100

$15$15 600600

$12$12 300300

$10$10 100100

Supply CurveSupply Curve

Upward-sloping line that shows in graph Upward-sloping line that shows in graph form the quantities supplied at each form the quantities supplied at each possible price.possible price.

Quantity of Cds supplied

pric

e

$10

$15

$12

$20

100 600 900 1100

Determinants of SupplyDeterminants of Supply

Price of Inputs (factors of production)Price of Inputs (factors of production) Number of firms in the industryNumber of firms in the industry TaxesTaxes TechnologyTechnology

Look at Figure 7.9 on page 191Look at Figure 7.9 on page 191

Law of Diminishing ReturnsLaw of Diminishing Returns

Economic Rule stating that as more units Economic Rule stating that as more units of a factor of production are added to other of a factor of production are added to other factors of production, after some point total factors of production, after some point total output continues to increase but at a output continues to increase but at a diminishing ratediminishing rate

Equilibrium PriceEquilibrium Price

The price at which the amount producers The price at which the amount producers are willing to supply is equal to the amount are willing to supply is equal to the amount consumers are willing to buyconsumers are willing to buy

Quantity of Cds supplied

pric

e

$10

$15

$12

$20

100 600 900 1100

Shortage/SurplusShortage/Surplus

Shortage: When quantity demanded is Shortage: When quantity demanded is greater than the quantity supplied at the greater than the quantity supplied at the current pricecurrent price

Surplus: When quantity supplied is greater Surplus: When quantity supplied is greater than quantity demanded at the current than quantity demanded at the current priceprice

Price ControlsPrice Controls Price Ceiling: A legal maximum price that may Price Ceiling: A legal maximum price that may

be charged for a particular good or servicebe charged for a particular good or service Rationing: distribution of goods and services Rationing: distribution of goods and services

based on something other than pricebased on something other than price Black Market: underground or illegal market in Black Market: underground or illegal market in

which goods are traded at prices above their which goods are traded at prices above their legal max. price or where illegal goods are soldlegal max. price or where illegal goods are sold

Examples of each?Examples of each?

Price FloorsPrice Floors

A legal minimum price below which a good A legal minimum price below which a good or service may not be soldor service may not be sold

Example of a price floor?Example of a price floor? What is likely to happen to labor supply What is likely to happen to labor supply

when price floor exists?when price floor exists? Surplus of workersSurplus of workers

Chapter 7, Section 3 QuizChapter 7, Section 3 Quiz

1.1. T/F: The law of supply states that price T/F: The law of supply states that price and quantity supplied move in opposite and quantity supplied move in opposite directionsdirections

2.2. Does an increase in price of inputs Does an increase in price of inputs increase or decrease quantity supplied?increase or decrease quantity supplied?

3.3. Does an improvement in technology Does an improvement in technology increase or decrease quantity supplied?increase or decrease quantity supplied?

AssignmentAssignment

Chapter 7, Section 3 Assess. 2-6. p. 192 Chapter 7, Section 3 Assess. 2-6. p. 192 Chapter 7, Section 4 Assess 2-6. p. 199. Chapter 7, Section 4 Assess 2-6. p. 199. Due end of hour 9/23.Due end of hour 9/23.

Read Chapter 8, sections 1 and 2. Pages Read Chapter 8, sections 1 and 2. Pages 207 – 217.207 – 217.