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)

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The Supply Curve

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Producers• Producer behavior shapes the supply curve.• Producers transform __________into products.• A main objective of producers is to ______ _______.• Profit =__________– Total Cost

– (P = TR -TC)

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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.

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Supply Schedule vs Supply Curve

• Supply Schedule • Supply Curve

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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.

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Elasticity of Supply• Measures how responsive producers are to a price change. • Elasticity of Supply = % change in Q

% change in Po 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.

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