pump primer chapter 4 in your own words, explain the difference between having a shortage vs. a...
TRANSCRIPT
Pump Primer
CHAPTER 4
In your own words, explain the difference between having a shortage vs. a surplus.
CHAPTER 4
Supply and Prices
Objectives:
CHAPTER 4
Should be able to...• Define supply, budget deficit & surplus• Identify the law of supply• Explain how changes in supply occur• Explain the existence of the market equilibrium point.• Describe the causes of a surplus and a shortage• Explain how the market price system works to alleviate a surplus or
a shortage.
Biblical Integration:
CHAPTER 4
Instead of pursuing earthly wealth, pursue the wisdom of God and what glorifies Him; and He will bless you with prosperity as He chooses. (Prov. 2:1-11; 3:5-10)
supply
CHAPTER 4 pp. 64-71
the amount of goods and services business firms are willing and able to provide at
different prices
business firms
CHAPTER 4 pp. 64-71
include all sellers of goods and services, not just major corporations
law of supply
CHAPTER 4 pp. 64-71
the higher the price buyers are willing to pay, other things being held constant, the
greater the quantity of a product a firm will produce and that the lower the price
consumers are willing to pay, the smaller the quantity the supplier will produce
supply schedule
CHAPTER 4 pp. 64-71
a tabular model noting the quantities of an item that suppliers are willing to produce at
various prices
supply curve
CHAPTER 4 pp. 64-71
a graph illustrating the quantities of an item that suppliers are willing to produce at various prices
change in quantity supplied
CHAPTER 4 pp. 64-71
whenever a change in the price consumers are willing to pay causes a change in the
number of goods produced and sold
Changes in Supply
• decrease in supply• leftward shift• suppliers produce less at any given price
CHAPTER 4 pp. 64-71
Changes in Supply
• increase in supply• rightward shift• suppliers produce more at any given price
CHAPTER 4 pp. 64-71
2. When supply increases, the supply curve shifts rightward from S0 to S2.
1. When supply decreases, the supply curve shifts leftward from S0 to S1.
Figure 4.7 shows changes in supply.
CHANGE IN SUPPLY
(Bade 101)
Supply Shift Factors
1. Changes in technology
2. Changes in productivity or production costs
3. Changes in the price of related goods
4. Expectations
5. Number of sellers
CHAPTER 4 pp. 64-71
1. Changes in Technology
• improves tools used to produce goods and services
• improves production or reduces cost
CHAPTER 4 pp. 64-71
CHAPTER 4 p. 68
2. Changes in Production Costs
• costs of natural resources, labor, and capital
• changes in these costs affect supply
CHAPTER 4 pp. 64-71
CHAPTER 4 p. 68
3. Changes in the Prices of Related Goods
• usually substitute goods• shift production to the more-profitable
good
CHAPTER 4 pp. 64-71
CHAPTER 4 p. 71
SUPPLY
by Advanced Placement Economics Teacher Resource Manual. National Council on Economic Education, New York, N.Y.
Activities 6
OBJECTIVES• Define supply schedule and supply curve.• Construct a supply curve using hypothetical data.• Explain why producers are willing to supply more of a
good or service when the price increases.• Explain the difference between a shift in the supply
curve and a movement along the supply curve.• Explain the difference between an increase in supply
and an increase in the quantity supplied.• Describe and analyze the forces that shift the supply
curve.• Explain why a supply curve would shift to the right or
left given specific changes in the economy.
INTRODUCTION
• This lesson introduces supply, the other half of the market system.
• A supply schedule represents the quantities that firms are willing and able to supply at alternative prices.
• A supply curve is a graphical representation of the supply schedule.
INTRODUCTION
• Activity 6 reinforces the factors that cause a supply curve to shift, the direction of the shift and whether the shift represents an increase or decrease in supply.
MOVEMENT ALONG A SUPPLY CURVE
• As the price declines from P1 to P, the quantity decreases from Q1 to Q
• Price decreases, the quantity supplied decreases.
SHIFT IN SUPPLY• An increase in supply is
a shift to the right( and a decrease in supply is a shift to the left).
• Increase in supply from S to S1 shows that at the same price (P), the quantity increased from Q to Q1.
SHIFT IN SUPPLY
Factors that Shift supply:• Number of suppliers• Prices of resources used to produce good• Prices of related goods produced• Technology• Expectations about future prices
• Part A• Read the eight newspaper headlines in Figure 6.2, and use the table to
record the impact, if any, of each event on the supply of cars.• Use the first column to the right of the headline to show whether the
event causes a change in supply.• Use the next column to record whether the change is an increase or a
decrease in supply.• In the third column, decide whether the supply curve shifts left or right.• Finally, write the letter for the new supply curve.
• Use Figure 6.1 to help you.• Always start at curve B, and move only one curve at a time.
• Two headlines imply that the supply of cars does not change
ACTIVITY 6
Y Inc R C
Y Inc R C
Y Dec L A
Y Dec L AY Dec L A
Y Dec L AN -- -- --N -- -- --
• Part B• Categorize each change in supply in Part A
according to the reason why supply changed,• In Figure 6.3, place an X next to the reason
that the event described in the headline caused a change in supply. • In some cases, more than one headline could be
matched to a reason.• Two headlines do not indicate a shift in supply.
X X X
X
X X
X
X
PUMP PRIMER• Using your textbook draw a supply & demand graph in
equilibrium.• Make sure to label the vertical and horizontal lines
correctly. Price Quantity D S E
market equilibrium point
CHAPTER 4 pp. 71-78
the point at which the demand curve and the supply curve for an item intersect
market equilibrium price
CHAPTER 4 pp. 71-78
the price corresponding to the intersection of an item’s supply and demand curves; the price at which consumers are willing to buy the same quantity that suppliers are willing to produce
Economy of Scale
• the more produced, the cheaper each product
• supply more with hopes that demand increases
CHAPTER 4 pp. 71-78
surplus
CHAPTER 4 pp. 71-78
an excess of unsold products
Carrying Costs
• storage• security• insurance• spoilage
CHAPTER 4 pp. 71-78
Carrying Costs
• loss of income while the product is sitting idle
• interest costs on financing the unsold production
CHAPTER 4 pp. 71-78
Surplus Solutions
1. increase demand
2. decrease supply
3. allow the price to fall to the market equilibrium point
CHAPTER 4 pp. 71-78
1. Increase Demand
• first and best solution for the supplier• produce a great quantity and charge a
higher price• “demand solution”
CHAPTER 4 pp. 71-78
CHAPTER 4 p. 73
1. Increase Demand
• increasing tastes and preferences• eliminate substitute goods• establish price floors
CHAPTER 4 pp. 71-78
2. Decrease Supply
• cut production• “supply solution”• problems = competition reaction
CHAPTER 4 pp. 71-78
CHAPTER 4 p. 73
increase demand
• demand solution• shifts the demand curve• favored by suppliers
decrease supply
• supply solution• shifts the supply curve
CHAPTER 4 pp. 71-78
3. Allow the Price to Fall to the Market Equilibrium Point
• the market does the work• supplier = gradually lowers price• buyer = purchases more at lower price• surplus gone; price stops falling
CHAPTER 4 pp. 71-78
CHAPTER 4 p. 74
Shortage
• caused by the price of a good being held lower than its market equilibrium price
• not enough of a good
CHAPTER 4 pp. 71-78
.
CHAPTER 4 p. 74
Price Ceilings
• government restrictions on prices• prevent prices from rising to equilibrium
value• always causes shortages
CHAPTER 4 pp. 71-78
.
loss leaders
CHAPTER 4 pp. 71-78
products that are deliberately sold at a loss to lure customers
Shortage Solutions
1. decrease demand
2. increase supply
3. allow the price to rise to the market equilibrium point
CHAPTER 4 pp. 71-78
1. Decrease Demand
• “demand solution”• by discouraging demand for a product
CHAPTER 4 pp. 71-78
CHAPTER 4 p. 75
2. Increase Supply
• “supply solution”• management of supply• two ways of increasing supply
1. improving technology
2. boosting productivity
CHAPTER 4 pp. 71-78
CHAPTER 4 p. 77
decrease demand
• demand solution• shifts demand curve• dangerous to suppliers
increase supply
• supply solution• shifts supply curve• focus on technology or
production
CHAPTER 4 pp. 71-78
3. Allow the Price to Rise to the Market Equilibrium Point
• not imposing price ceilings• benefits
• encourages conservation and discourages wastefulness
• motivates entrepreneurs to enter the market
CHAPTER 4 pp. 71-78
CHAPTER 4 p. 78
EQUILIBRIUM
Activity 7
by Advanced Placement Economics Teacher Resource Manual. National Council on Economic Education,
New York, N.Y.
OBJECTIVES• Define equilibrium price and equilibrium quantity.• Determine the equilibrium price and quantity when given the demand for
and supply of a good or commodity.• Explain why, at prices above or below the equilibrium price, market forces
operate to move the price back toward equilibrium price.• Predict the equilibrium price and quantity if there are changes in demand or
supply.• Given a change in supply or demand, explain which curve shifted and why.• Explain how markets act as rationing devices.
• Define price elasticity of demand and price elasticity of supply.• Calculate price elasticity using the arc method.• Predict the effect on price and quantity given demand curves with
different elasticity's.• Explain the difference between slope of a line and the elasticity
between two points on a line.
INTRODUCTION• This lesson will bring the two sides of the
market—demand and supply—together to determine the equilibrium price and quantity.
• You should understand that unless there are forces operating to change supply or demand, the price and quantity will remain at the equilibrium.
• Activity 7 brings the supply and demand sides of the market together and helps the students understand equilibrium price and quantity.
• The factors that shift supply and demand are also used to emphasize the impact of supply or demand on the equilibrium price and quantity.
• The second part of Activity 7 has you work through changes in supply and demand and the effects in related markets.
EQUILIBRIUM QUANTITY AND PRICE
A. What happens if the price is $10?
The quantity supplied is 100, and the quantity demanded is 60. Therefore, there is excess supply.
EQUILIBRIUM QUANTITY AND PRICE
B. What happens if the price is $6?
The quantity demanded is 100, and the quantity supplied is 60. Therefore, there is excess demand.
EQUILIBRIUM QUANTITY AND PRICE
C. What happens if the price is $8?The quantity that producers want to sell is exactly equal to the quantity that buyers want to buy. The market is in equilibrium.
ACTIVITY 7
• Find one partner (not your close friend)!• Complete Activity 7.
• You will be called upon to come to the board and share your answers.
S
D
E
1. Under these conditions, competitive market forces would tend to establish an equilibrium price of ____ per Greebe and an equilibrium quantity of _____ million Greebes. (Equilibrium price and quantity)
2. If the price currently prevailing in the market is $0.30 per Greebe, buyers would want to buy ____ Greebes. And sellers would want to sell ____ million Greebes. Under these conditions, there would be a (shortage / surplus) of _____ million Greebes. Competitive market forces would tend to cause the price to (increase / decrease) to a price of ____ per Greebe. (Market Equilibrium price)
$ 0.25200
150
250
100
$0.25
• At this new price (equilibrium), buyers would now want to buy ____ million Greebes, and sellers now want to sell ____ million Greebes. Because of this change in (price / underlying conditions), the (demand / quantity demanded) changed by ____ million Greebes, and the (supply / quantity demanded) changed by ____ million Greebes
200
200
50
50
3. If the price currently prevailing in the market is $0.20 per Greebe, buyers would want to buy ____ million Greebes, and sellers would want to sell ____ million Greebes. Under these conditions, there would be a (shortage / surplus) of ____ million Greebes. Competitive market forces would tend to cause the price to (increase / decrease) to a price of ____ per Greebe. At this new price buyers would now want to buy ____ million Greebes, and sellers now want to sell ____ million Greebes. Because of this change in (price / underlying conditions), the (demand / quantity demanded) changed by 50 Greebes, and the (supply / quantity supplied) changed by ____ million Greebes.
250
150
100
$0.25
200200
50
SS1
D
EE1
4. Now, suppose a mysterious blight causes the supply schedule for Greebes to change to the following:
• Under these conditions, competitive market forces would tend to establish an equilibrium price of ____ per Greebe and an equilibrium quantity of ____ million Greebes.
• Compare with the equilibrium price in Question 1, we say that because of this change in (price, underlying conditions), the (supply / quantity supplied) changed; and both the equilibrium price and the equilibrium quantity changed. The equilibrium price (increased / decreased), and the equilibrium quantity (increased / decreased).
$0.30
150
SS1
DD1
EE1
E2
5. Now, with the supply schedule at S1, suppose further that a sharp drop in people’s income as the result of a prolonged recession cause the demand to change to the following:
• Under these conditions, with the supply schedule at S1, competitive market forces would tend to establish an equilibrium price of ____ per Greebe and an equilibrium quantity of ____ million Greebes. Compare with the equilibrium price in Question 4, because of this change in (price / underlying conditions), the (demand / quantity demanded) changed. The equilibrium price (increased / decreased), and the equilibrium quantity (increased / decreased).
6. The movement from the first equilibrium price and quantity to the equilibrium price and quantity is the result of a (price / nonprice) effect.
$0.25
100
S1 S1
D1
D1
S1
D1
D1 D1
D1 D1 D1D1