1. Demand Review Concepts of demand and supply are cornerstones of economics Law of demand states that prices and quantity demanded vary inversely – Other influencing factors Demand elasticity – % change in Q % change in P – Rope (inelastic) vs. rubber band (elastic) 1

2. 5.1 The Supply Curve 2

3. Producers Producer behavior shapes the supply curve. Producers transform __________into products. A main objective of producers is to ______ _______. Profit =__________– Total Cost – (P = TR -TC) 3

4. Supply Supply indicates how much of a good producers are willing and able to offer for sale per period, other things constant. The law of supply states that quantity supplied is usually _________ related to its price, other things constant. Producers are more willing to supply as an increase in price of one product creates an incentive of ______ _____to shift resources out of producing other goods. The cost of producing an additional unit of good usually _____ as output increases. A higher price makes suppliers more able to increase quantity supplied. – Ex. A higher price for gasoline increases producers ability to search for oil in less accessible areas. 4

5. Supply Schedule vs Supply Curve Supply Schedule Supply Curve 5

6. Supply vs Quantity Supplied Supply is the _____ _________between the price and quantity supplied. Quantity supplied refers to a particular amount offered for sale at a particular price, as shown by a _________ on a supply curve. Individual supply is the supply of an individual producer, where __________ supply is the supply of all producers. 6

7. Elasticity of Supply Measures how responsive producers are to a price change. Elasticity of Supply =% change in Q % change in P o If > 1 – __________ o If = 1 – __________ o If < 1 – __________ If the cost of supplying an additional unit rises sharply as output expands, then a higher price will generate little increase in quantity supplied, so supply will tend to be inelastic. If the cost of supplying an additional unit rises slowly, the profit lure of a higher price will prompt a relatively large boost in output. In this case supply will be more ________. Supply becomes ________ elastic over time as producers adjust to price changes. The ease of increasing quantity supplied differs across industries. Producing lumber vs. selling hot dogs. 7