Unit One: Supply and Demand

I. The Supply Curve Supply: units of a product offered for sale by producers Law of Supply: producers will provide more a product when the price is higher and less when the price is lower

Total Costs = fixed costs + variable costs I. The Supply Curve Costs of Production: Fixed Costs: costs that do not change, no matter how much of the product is produced (ex. Rent) Variable Costs: costs that rise and fall depending upon the quantity produced (ex. Electricity bills, wages) Total Costs = fixed costs + variable costs

I. The Supply Curve Revenue = Profit + Total Cost The goal of firms is to maximize profit. Revenue = Profit + Total Cost Profit = Revenue – Total Cost Looking to use their resources the most efficient way possible, so that they can get as much profit as possible

I. The Supply Curve Supply Schedule: a table that lists the quantity of a product producers will provide at different price levels Price ($) Quantity Supplied $.50 100 $1 150 $1.50 200 $2 250

I. The Supply Curve Change in Quantity Supplied Change in Supply Only price changes Movement along the curve Change in Supply Something other than price changes Shift of supply curve

II. Determinants of Supply Factors that will change supply regardless of price. Changes in Resource Prices Number of Sellers in the Market Government Intervention Prices of Other Goods Price Expectations

II. Determinants of Supply Changes of Resource Prices: change in the price of materials used to make a product will cut into profits and force producers to change supply. Technology Quality of workers

II. Determinants of Supply Number of Sellers in the Market: the more producers in the market the larger the quantity supplied.

II. Determinants of Supply Government Intervention: by raising and lowering the cost of producing goods the government can encourage or discourage sellers. Government payment to support a business or market Ex. Subsidies on corn Subsidies Taxes placed on the sale or production of a good Ex. Taxes on cigarettes Excise Taxes

II. Determinants of Supply Price of Other Goods: when there is an increase in price for one of two products that require similar resources, sellers will switch production to more of the cheaper good. Higher profits

II. Determinants of Supply Producer Expectations: their expectations of the future can impact their willingness to supply a product.

Review 1. Which of the following will decrease the supply of good “X”? There is a technological advance that affects the production of all goods. The price of good “X” falls. The price of good “Y” (which consumers regard as a substitute for good “X”) decreases. The wages of workers producing good “X” increase. The demand for good “X” decreases. D

Review 2. A technological advance in textbook production will lead to which of the following? A decrease in textbook supply An increase in textbook demand An increase in textbook supply A movement along the supply curve for textbooks An increase in textbook prices c

Review 3. Which of the following would increase demand for a normal good? A decrease in Price. Income. The price of a substitute. Consumer taste for a good. The price of a complement. E

Review 4. A decrease in the price of butter would most likely decrease the demand for Margarine. Bagels. Jelly. Milk. Syrup. A

Review 5. Which of the following will occur if consumers expect the price of a good to fall in the coming months? The quantity demanded will rise today. The quantity demanded will remain the same today. Demand will increase today. Demand will decrease today. No change will occur today. D