unit 2: demand, supply, and consumer choice 1 copyright acdc leadership 2015

Unit 2:Demand, Supply, and

Consumer Choice

1Copyright ACDC Leadership 2015

Copyright ACDC Leadership 2015

Supply

https://www.youtube.com/watch?v=ewPNugIqCUM

Supply DefinedWhat is supply?Supply is the different quantities of a good that sellers are willing and able to sell (produce) at different prices.

What is the Law of Supply?There is a DIRECT (or positive) relationship between price and quantity supplied.

•As price increases, the quantity producers make increases•As price falls, the quantity producers make falls.

Why? Because, at higher prices profit seeking firms have an incentive to produce more.

EXAMPLE: Mowing Lawns3Copyright

ACDC Leadership 2015

Example of SupplyYou own an lawn mower and you are

willing to mow lawns. How many lawns will you mow at these prices?

Price per lawn mowed

Quantity

SuppliedSupply Schedule

4

$1$5

$20$50

$100$1000


GRAPHING SUPPLY

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

Draw this large in your notes

5

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10


GRAPHING SUPPLY

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

6

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply


GRAPHING SUPPLY

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

7

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if there are new

and more productive

milking machines?


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

8

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

9

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

10

PriceQuantity

Supplied

$5 50 70

$4 40 60

$3 30 50

$2 20 40

$1 10 30

Supply


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

11

SupplyS2

PriceQuantity

Supplied

$5 50 70

$4 40 60

$3 30 50

$2 20 40

$1 10 30

Increase in SupplyPrices didn’t change but

there is MORE milk produced


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

12

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if the price for

dairy cows increases

drastically?


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

13

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

14

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

15

PriceQuantity

Supplied

$5 50 30

$4 40 20

$3 30 10

$2 20 1

$1 10 0

Supply


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

16

SupplyS2

PriceQuantity

Supplied

$5 50 30

$4 40 20

$3 30 10

$2 20 1

$1 10 0

Decrease in SupplyPrices didn’t change but

there is LESS milk produced


Change in Supply

Q

$5

4

3

2

1

Price of Milk

Quantity of Milk

Supply Schedule

10 20 30 40 50 60 70 80

17

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if there is a

increase in the number

of milk producers?


5 Shifters (Determinants) of Supply

1. Prices/Availability of inputs (resources)2. Number of Sellers3. Technology4. Government Action: Taxes & Subsidies

5. Expectations of Future ProfitChanges in PRICE don’t shift the curve. It only

causes movement along the curve.


1. Which of the following will cause the quantity supplied for milk to decrease?A.Decrease in the price of a key resourceB.A decrease in the number of milk producersC.A decrease in the price of milkD.An increase in the price of milkE.A subsidy for milk producers

19

Practice Questions


Supply PracticeIdentify the determinant (shifter) then decide if

supply will increase or decrease

20

ShifterIncrease or Decrease

Left or Right

1

2

3

4

5


Supply Practice

Analyze Hamburgers1. Strange virus kills 20% of cows 2. Price of hamburgers increase 30%3. Government taxes burger producers4. New bun baking technology cuts production time in half5. The government subsidizes dairy farmers 6. Minimum wage increases to $20

1. Which determinant (SHIFTER)?2. Increase or decrease?3. Which direction will curve shift?


Putting Supply and Demand Together!!!


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

23

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

D

SSupply

Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10

Supply and Demand are put together to determine equilibrium price and equilibrium quantity


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

24

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

Supply Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10


Equilibrium Price = $3 (Qd=Qs)

Equilibrium Quantity is 30

D

S


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

25

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

Supply Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10


D

S

What if the price

increases to $4?


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

26

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

Supply Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10

D

S

At $4, there is disequilibrium. The quantity demanded is less than quantity supplied.

Surplus (Qd<Qs)

How much is the surplus at $4?

Answer: 20


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

27

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

Supply Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10

D

S

How much is the surplus if the price is $5?

Answer: 40What if the price

decreases to $2?


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

28

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

Supply Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10

D

S

At $2, there is disequilibrium. The quantity demanded is greater than quantity supplied.

Shortage(Qd>Qs)

How much is the shortage at $2?

Answer: 30


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

29

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

Supply Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10

D

S

Answer: 70

How much is the shortage if the price is $1?


Q

$5

4

3

2

1

PDemand Schedule

10 20 30 40 50 60 70 80

30

P Qd

$5 10

$4 20

$3 30

$2 50

$1 80

Supply Schedule

P Qs

$5 50

$4 40

$3 30

$2 20

$1 10

D

SWhen there is a

surplus, producers lower prices

The FREE MARKET system automatically pushes the price toward equilibrium.

When there is a shortage, producers

raise prices


Review1. Explain the Law of Demand2. Explain the Law of Supply3. Identify the 5 shifters of demand4. Identify the 6 shifters of supply 5. Define Subsidy6. Explain why price DOESN’T shift the

curve7. Define Equilibrium 8. Define Shortage9. Define Surplus10.Identify 10 stores in the mall


2008 Audit Exam

unit 2: demand, supply, and consumer choice 1 copyright acdc leadership 2015

Documents

supply slide

supply s2s2 price quantity

example of supply

law of supply

graphing supply q

price increases

price falls

supply prices didnt