Chapter 7, Sections 3 and 4

1. Chapter 7, Sections 3 and 4 The Law of Supply and the Supply Curve; Putting Supply and Demand Together

2. Break into groups of 2 You are a supplier, what are you supplying? What is the name of your company? Under normal economic conditions, for how much would you sell one item of your good or service? Under normal economic conditions, how many units of your good or service would you create in 1 day?

3. Supply activity continued Chart this point on a graph – with price on the y-axis and Quantity supplied on the x-axis Now, imagine the price for this good or service increased by $5 per item, how many items would you now produce in 1 day? Chart this point on your graph. Finally, imagine the price for this good or service decreased by $5 (or less if your original sales price is < $5). How many items would you produce in 1 day? Chart this point and draw a line through your 3 points.

4. Supply Activity Cont. Looking at your chart, with respect to price and quantity supplied, what do you think the Law of Supply states? -hint: do price and q supplied move in the same or opposite directions? What are some factors, other than price of the product you are selling, that would affect the amount of goods or services you are able to supply?

5. Supply • Law of Supply: Economic Rule stating that price and quantity supplied move in the same direction. • As the price rises for a good, the quantity supplied generally rises • As the price falls, the quantity supplied also falls

6. Quantity Supplied • The amount of a good or service that a producer is willing and able to supply at a specific price.

7. Supply Schedule • Table showing quantity supplied at different possible prices

8. Supply Curve • Upward-sloping line that shows in graph form the quantities supplied at each possible price. $20 $15 price $12 $10 100 600 900 1100 Quantity of Cds supplied

9. Determinants of Supply • Price of Inputs (factors of production) • Number of firms in the industry • Taxes • Technology Look at Figure 7.9 on page 191

10. Law of Diminishing Returns • Economic Rule stating that as more units of a factor of production are added to other factors of production, after some point total output continues to increase but at a diminishing rate

11. Equilibrium Price • The price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy $20 $15 price $12 $10 100 600 900 1100 Quantity of Cds supplied

12. Shortage/Surplus • Shortage: When quantity demanded is greater than the quantity supplied at the current price • Surplus: When quantity supplied is greater than quantity demanded at the current price

13. Price Controls • Price Ceiling: A legal maximum price that may be charged for a particular good or service • Rationing: distribution of goods and services based on something other than price • Black Market: underground or illegal market in which goods are traded at prices above their legal max. price or where illegal goods are sold • Examples of each?

14. Price Floors • A legal minimum price below which a good or service may not be sold • Example of a price floor? • What is likely to happen to labor supply when price floor exists? • Surplus of workers

15. Chapter 7, Section 3 Quiz • T/F: The law of supply states that price and quantity supplied move in opposite directions • Does an increase in price of inputs increase or decrease quantity supplied? • Does an improvement in technology increase or decrease quantity supplied?

16. Assignment • Chapter 7, Section 3 Assess. 2-6. p. 192 Chapter 7, Section 4 Assess 2-6. p. 199. Due end of hour 9/23. • Read Chapter 8, sections 1 and 2. Pages 207 – 217.