1. Chapter 5/6: Supply/Prices

2. Section 1: Understanding Supply
Supply is the counterpart to demand, together they shape markets.

3. Supply
Supply is the amount of goods or services available.

4. Law of Supply
Price
Supply
Price
Supply
Suppliers will offer more of a good at a higher price, and vice versa.

5. Price of a slice of pizza Quantity of slices supplied
Supply Schedule
Price of a slice of pizza
Quantity of slices supplied
$.50 1
$1.00 2
$1.50 3
$2.00 4
$2.50 5
A supply schedule is a table that lists quantity supply levels at different prices.

6. Market Supply Schedule
Price of a slice of pizza
Quantity of slices supplied
$.50
1 million
$1.00
2 million
$1.50
3 million
$2.00
4 million
$2.50
5 million
A market supply schedule charts supply levels for an entire economy.

7. Supply Curve
Supply curves plot the data from demand schedules onto a graph.

8. Creating our own supply schedule
How much would you sell an ipad for?

9. Elasticity of Supply
Elasticity measures the way supply responds to changes in price.
Elastic supply = supply changes greatly
Inelastic supply = supply doesn’t change much

10. Elastic Supply
An increase/decrease in price greatly impacts the level of supply.
Examples?

11. Inelastic Supply
An increase/decrease in price doesn’t greatly impact the level of supply.
Examples?

12. Section 3: Costs of Production
Supply is influenced not only by demand, but by the costs of production.

13. Costs Costs can be divided into two categories…
Fixed cost: a cost that does not change, no matter how much is produced.
Variable cost: A cost that rises and falls depending on how much is produced.

14. Business Cost Exercise
With a partner, quickly create a business idea.
Come up with a list of all the different costs you will have in supplying your good/service.

15. Business Cost Exercise
With a partner, quickly create a business idea.
Come up with a list of all the different costs you will have in supplying your good/service.
Determine which are fixed costs and which are variable.

16. Examples of Fixed and Variable Costs
Rent/mortgage
Equipment purchase/repair
Property taxes
Salaries of workers
Variable:
Extra resources to produce more
Extra employees
Advertising/Marketing
Utilities: heat/electric

17. Total Cost
Fixed costs + variable costs = total cost

18. Managing Variable Costs
Businesses need to decide whether creating additional supply is worth the additional costs.

19. Section 3: Changes in Supply
Like demand curves, sometimes shifts occur along the curve, and sometimes the entire curve shifts.

20. Supply Shifts Impacts on supply include…
Change of price for good/service
Production costs
Technology
Government influence on supply

21. Supply Curve
Supply Curves can shift right or left depending on increased or decreased supply levels at all costs.

22. Supply Decrease

23. Impacts on Supply: Technology
Improved technology often increases the potential supply for goods or services.

24. Impacts on Supply: Government
Subsidies: government payment to support a business or market.
Examples: agriculture, oil

25. Impacts on Supply: Taxes
Taxes impact supply levels
Excise tax: tax on the production or sale of a good (often to discourage their supply)

26. Impacts on Supply: Government
Regulation: government regulation can increase or decrease supply.
Example: environmental regulation

27. Future Expectations
Future expectations impact supply: will the demand go up or down for this product?

28. Chapter 6: Prices
Prices are always changing, based on availability (supply) and demand.

29. Section 1: Combining Supply & Demand
Together, supply and demand interact to determine prices.

30. Equilibrium Price
The point where demand and supply meet is the equilibrium point where prices are set.

31. Supply/Demand Schedule
Price of a slice of pizza
Quantity of slices supplied
Quantity of slices Demanded
$.50 1 5
$1.00 2 4
$1.50 3
$2.00
$2.50

32. Supply/Demand Curve
Equilibrium point is where the two lines intersect.

33. Disequilibrium
Disequilibrium occurs whenever the amount supplied is not equal to the amount demanded at a certain price.

34. Excess Demand
Excess demand occurs when there is more demand than supply.

35. Excess Demand
When the price is below equilibrium, excess demand occurs.

36. Excess Supply
Excess supply happens when there is more supply than demand.

37. Excess Supply
When the price is above equilibrium, excess supply occurs.

38. Government Intervention: Price Ceilings
Sometimes government intervenes to control prices.
Price ceiling: a maximum price that can be legally charged for something.
Example: rent control

39. Price Ceiling

40. Government Intervention: Price Floor
Price Floor: a minimum amount that can be charged for an item.
Example: Agriculture, minimum wage.

41. Price Floor

42. Section 2: Changes in Equilibrium
As supply and demand shift, equilibrium prices change.

43. Shifts in Supply If demand remains the same… Example: bacon shortage!
An increase in supply will lower price.
A decrease in supply will raise the price.
Example: bacon shortage!

44. Increase in Supply Curve
A new supply curve changes the equilibrium price.

45. Decrease in Supply Curve
A new supply curve changes the equilibrium price.

46. Shifts in Demand If supply remains the same…
An increase in demand will increase the equilibrium price.
A decrease in demand will lower equilibrium price.
Example: Ironic, hipster t-shirts

47. Increase in Demand CurveP2 P1
A new demand curve changes the equilibrium price.

48. Decrease in Demand CurveP1 P2
A new demand curve changes the equilibrium price.

49. What if both Demand and Supply Increase (or Decrease)?
Housing:
increased demand + increased supply = consistent prices

50. What if both Demand and Supply Increase (or Decrease)?

51. What if demand increases and supply decreases?
Fossil Fuels (Oil)
Increased demand + decreased supply = runaway price increases

52. What if demand increases and supply decreases?