pump primer in your own words, explain the difference between having a shortage vs. a surplus
TRANSCRIPT
Pump Primer
In your own words, explain the difference between having a shortage vs. a surplus.
“ECONOMICS ”
By Alan J. Carper
Bob Jones University Press. 1998
CHAPTER 4: “SUPPLY AND PRICES”
UNIT I: WHAT IS ECONOMICS?
Objectives:
Should be able to...Define supply, budget deficit & surplusIdentify the law of supplyExplain how changes in supply occurExplain the existence of the market
equilibrium point.Describe the causes of a surplus and a
shortageExplain how the market price system
works to alleviate a surplus or a shortage.
BIBLICAL INTEGRATION:
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
Supply is the “amount of goods and services business firms are willing and able to provide at different prices.”
The Law of Supply The “higher the price buyers are willing to pay,
other things being held constant, the greater the quantity of the product a supplier will produce.”
Likewise, if the price of a good falls, the quantity supplied of that good decreases.
(Carter 30)
Supply Schedule and Supply Curve
A supply schedule is a list of the quantities supplied at each different price when all other influences on selling plans remain the same.
A supply curve is a graph of the relationship between the quantity supplied and the price of the good when all other influences on selling plans remain the same.
(Bade 99)
SUPPLY
(Bade 99)
Individual Supply and Market Supply
Market supply is the sum of the supplies of all sellers in a market.
The market supply curve is the horizontal sum of the supply curves of all the sellers in the market.
(Bade 100)
SUPPLY
(Bade 100)
Change in SupplyA change in supply is a change in
the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.
(Bade 101)
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)
Change in SupplyThe main influences on selling plans that change supply are
Prices of related goods
Prices of resources and other Inputs
Expectations
Number of sellers
Productivity
(Bade 101)
Substitute in Production
A change in the price of one good can bring a change in the supply of another good.
A substitute in production is a good that can be produced in place of another good. For example: cookie dough ice cream for
chocolate chip ice cream in an ice cream factory.
The supply of a good increases if the price of one of its substitutes in production falls.
The supply a good decreases if the price of one of its substitutes in production rises.
(Bade 101)
Complement In ProductionA complement in production is a good
that is produced along with another good. For example: straw and wheat
The supply of a good increases if the price of one of its complements in production rises.
The supply a good decreases if the price of one of its complements in production falls.
(Bade 102)
Prices of Resources and Expectations
Prices of Resources and Other InputsResource and input prices influence the cost
of production. And the more it costs to produce a good, the smaller is the quantity supplied of that good.
ExpectationsExpectations about future prices influence
supply.
Expectations of future input prices also influence supply.
(Bade 102)
Number of Sellers & ProductivityNumber of Sellers The greater the number of sellers in a
market, the larger is supply.
Productivity Productivity is output per unit of input. An increase in productivity lowers costs
and increases supply. For example, an advance in technology.
A decrease in productivity raises costs and decreases supply. For example, a severe hurricane.
(Bade 102)
Change in Quantity Supplied vs Change in Supply
A change in quantity supplied is a change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.
A change in supply is a change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.
(Bade 102)
Change in Quantity Supplied vs Change in Supply
Figure 4.8 illustrates and summarizes the distinction (Bade 103)
Activity 6
Supply
National Council on Economic Education, New York, N.Y.
SUPPLY
by Advanced Placement Economics Teacher Resource Manual. National Council on Economic Education, New York, N.Y.
Activities 5
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.
IntroductionThis 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.
Remember, understanding a market is essential to success in AP Economics!
IntroductionIn Activity 5, you will graph a supply
schedule, which will help you understand the implications of a shift in the supply curve.The activity then focuses on the factors that
shift the supply curve.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 SupplyAn 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
Activity 6: Reasons for Changes in Supply
Part ARead 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 CY Dec L A
Y Dec L AY Dec L A
Y Dec L AN -- -- --N -- -- --
Part BCategorize 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
Market Equilibrium
Market equilibrium occurs when the quantity demanded equals the quantity supplied—when buyers’ and sellers’ plans are consistent.
Equilibrium price is the price at which the quantity demanded equals the quantity supplied.
Equilibrium quantity is the quantity bought and sold at the equilibrium price.
(Bade 105)
Equilibrium Price and Equilibrium Quantity
Figure 4.9 shows the
equilibrium price and
equilibrium quantity.
1. Market equilibrium at the intersection of the demand curve and the supply curve.
2. The equilibrium price is $1 a bottle.
3. The equilibrium quantity is 10 million bottles a day.
(Bade 105)
Price: A Market’s Automatic Regulator
Law of market forcesWhen there is a shortage, the price rises.When there is a surplus, the price falls.
Surplus or Excess Supply is the quantity supplied exceeds the quantity demanded.
Shortage or Excess Demand is the quantity demanded exceeds the quantity supplied.
(Bade 106)
Forces that Achieve Equilibrium
Figure 4.10(b) market
achieves equilibrium.
At $1.50 a bottle:1. Quantity supplied is 11
million bottles.
3. There is a surplus of 2 million bottles.
4. Price falls until the surplus is eliminated and the market is in equilibrium.
2. Quantity demanded is 9 million bottles.
(Bade 106)
Forces that Achieve Equilibrium
Figure 4.10(a) market
achieves equilibrium.
At 75 cents a bottle:1. Quantity is demanded 11
million bottles.
3. There is a shortage of 2 million bottles.
4. Price rises until the shortage is eliminated and the market is in equilibrium.
2. Quantity supplied is 9 million bottles.
(Bade 106)
Surplus & Shortage¨ Solutions to surplus:
¨ Increase demand¨ Decrease supply¨ Allow the price to fall to the market
equilibrium point (price cutting) – the simplest solution.
(Carper. 40-44)
¨ Solutions to shortage:¨ Decrease demand¨ Increase supply¨ Allow the price to rise to the market
equilibrium point.
Effects of Changes in Demand
Event: A new study says the public water is unsafe.
To work out the effects on the market for bottled water:1. With public water being unsafe,
demand for bottled water changes.2. The demand for bottled water
increases, the demand curve shifts rightward.
3. What are the new equilibrium price and equilibrium quantity and how have they changed?
(Bade 107)
Effects of Change in Demand
Figure 4.11(a) illustrates the outcome.
1. An increase in demand shifts the demand curve rightward.
2. At $1.00 a bottle, there is a shortage, so the price rises.
3. The quantity supplied increases along the supply curve.
4. Equilibrium quantity increases.
(Bade 107)
Effects of Change in DemandEvent: A new zero-calorie sports drink is
invented. To work out the effects on the market for
bottled water:1. The new drink is a substitute for
bottled water, so the demand for bottled water changes
2. The demand for bottled water decreases, the demand curve shifts leftward.
3. What are the new equilibrium price and equilibrium quantity and how have they changed?
(Bade 107)
Effect of Change in Demand
Figure 4.11(b) shows the
outcome.
1. A decrease in demand shifts the demand curve leftward.
2. At $1.00 a bottle, there is a surplus, so the price falls.
3. Quantity supplied decreases along the supply curve.
4. Equilibrium quantity decreases.
(Bade 107)
Effects of Changes in Supply
Event: Europeans produce bottled water in the United States.
To work out the effects on the market for bottled water:1. With more suppliers of bottled water,
supply changes.2. The supply of bottled water
increases, the supply curve shifts rightward.
3. What are the new equilibrium price and equilibrium quantity and how have they changed? (Bade 108)
Effects of Change in Supply
Figure 4.12(a) shows the
outcome.
1. An increase in supply shifts the supply curve rightward.
2. At $1.00 a bottle, there is a surplus, so the price falls.
3. Quantity demanded increases along the demand curve.
4. Equilibrium quantity increases.
(Bade 108)
MARKET EQUILIBRIUM
Event: Drought dries up some springs in the United States.
To work out the effects on the market for bottled water:
1. Drought changes the supply of bottled water.
2. The supply of bottled water decreases, the supply curve shifts leftward.
3. What are the new equilibrium price and equilibrium quantity and how have they changed?
(Bade 108)
Effects of Change in Supply
Figure 4.12(b) shows the
outcome.
1. A decrease in supply shifts the supply curve leftward.
2. At $1.00 a bottle, there is a shortage, so the price rises.
3. Quantity demanded decreases along the demand curve.
4. Equilibrium quantity decreases.
Changes in Both Demand & Supply
When two events occur at the same time, work out how each event influences the market:1. Does each event change demand or
supply? 2. Does either event increase or decrease
demand or increase or decrease supply?
3. What are the new equilibrium price and equilibrium quantity and how have they changed?
(Bade 110)
Demand & Supply Change in the Same Direction
The figure shows theeffects of an increase inboth demand and supply.
An increase in demandshifts the demand curverightward; an increasein supply shifts the supplycurve rightward.
1. Equilibrium quantity increases.
2. Equilibrium price might rise or fall.
(Bade 110)
Increase in Both Demand and Supply
Increases the equilibrium quantity.
The change in the equilibrium price is ambiguous because the:
Increase in demand raises the price.
Increase in supply lowers the price.
(Bade 110)
Increase in Both Demand and Supply
This figure shows theeffects of a decrease inboth demand and
supply.A decrease in demandshifts the demand curveleftward; a decrease insupply shifts the supplycurve leftward.
3. Equilibrium quantity decreases.
4. Equilibrium price might rise or fall.
(Bade 110)
Decrease in Both Demand and Supply
Decreases the equilibrium quantity.
The change in the equilibrium price is ambiguous because the:
Decrease in demand lowers the price
Decrease in supply raises the price.
(Bade 110)
Decrease in Both Demand and Supply
The figure shows the effectsof an increase in demandand a decrease in supply.
An increase in demand shiftsthe demand curve rightward;a decrease in supply shiftsthe supply curve leftward.
1. Equilibrium price rises.
2. Equilibrium quantity might increase, decrease, or not change.
(Bade 110)
Increase in Demand and Decrease in Supply
Raises the equilibrium price.
The change in the equilibrium quantity is ambiguous because the:
Increase in demand increases the quantity.
Decrease in supply decreases the quantity.
(Bade 111)
MARKET EQUILIBRIUM
This figure shows the effects
of a decrease in demandand an increase in
supply.A decrease in demand shiftsthe demand curve leftward;an increase in supply shiftsthe supply curve rightward.
3. Equilibrium price falls.
4. Equilibrium quantity might increase, decrease, or not change.
(Bade 111)
Decrease in Demand and Increase in Supply
Lowers the equilibrium price.
The change in the equilibrium quantity is ambiguous because the:
Decrease in demand decreases the quantity.
Increase in supply increases the quantity.
(Bade 111)
EQUILIBRIUM
Activity 7
by Advanced Placement Economics Teacher Resource Manual. National Council on Economic Education, New York, N.Y.
ObjectivesDefine 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.
Objectives
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.
IntroductionThis 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.
IntroductionActivity 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 7Find one partner (not your close friend)!Complete Activity 7.
You will be called upon to come to the board and share your answers.
SS1
DD1
EE1
E2
S1 S1
D1
D1
S1
D1
D1 D1
D1 D1 D1D1
Works Cited
Carper, Alan. Economics for Christian Schools. Greenville: Bob Jones University Press, 1998.
"The New King James Version." Logos Bible Software. CD_ROM. ed. 2004.