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Comparative Advantage in International Trade

Understand the benefits of nations trading with each other, such as obtaining scarce goods, creating jobs, and achieving comparative advantage through specialization.

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Comparative Advantage in International Trade

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  1. VOCAB LOG – 9.1, 12/07 • COMPARATIVE ADVANTAGE: ability of a country to produce a good at a lower opportunity cost that another country • DOMESTIC: relating to within your country • TARIFF: taxes on imported goods to protect domestic industries • QUOTA: limits on amount of imported goods to protect domestic industries • FREE TRADE: removal of barriers to trade like quotas & tariffs • EXCHANGE RATE: price of one nation’s currency in terms of another nation’s • BALANCE OF TRADE: difference b/w value nation’s exports & imports • TRADE SURPLUS: when value of a nation’s exports is greater than it’s imports • TRADE DEFICIT: when value of a nation’s imports is greater than it’s exports • INTERDEPENDENCE: idea that nations rely on one another for goods, services, & resources • PROTECTIONISM: when nations try to protect their industries from foreign competition, usually w/ tariffs & quotas

  2. CIVICS & ECONOMICSUNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! “Almost all wars … are trade wars connected with some material interest. They are always disguised as sacred wars, made in the name of God, or civilization, or progress. But … almost all of them, have been trade wars.” – Eduardo Galeano

  3. DIRECTIONS: • ALL BOOKS OPEN TO PAGE 708 • I WILL READ ALOUD AS YOU FOLLOW ALONG • WHEN I AM FINISHED, INDIVIDUALLY OR WITH A PARTNER BESIDE YOU RE-READ AND COMPLETE THE PORTION OF NOTES DESIGNATED BY MR. K. • IF YOU HAVE TROUBLE WITH BLANKS AFTER RE-READING, PLEASE RAISE YOUR HAND & CONTINUE MOVING ON TO EFFECTIVELY MANAGE YOUR TIME • WHEN TIME IS CALLED, YOU WILL EXACTLY TWO MINUTES TO CHECK YOUR WORK ON THE SLIDES PROVIDED. • THESE SLIDES ARE NOT FOR YOU TO COPY BECAUSE OF INEFFECTIVE TIME MANAGEMENT. • AFTER THE TWO MINUTES IS CALLED, WE WILL MOVE ON TO THE NEXT SECTION • IF YOU MISS NOTES, PLEASE CHECK THE WEBSITE kcivecon.weebly.comOR ASK TO BORROW A SLIDE PACKET AT THE END OF NOTESOR BORROW NOTES FROM A FRIEND • YOU CAN COMPLETE THESE SUCCESSFULLY BY REMAINING ON TASK

  4. 9.1 – WHY NATIONS TRADE (p. 707) • Nations trade with one another to obtain GOODS/SERVICES they themselves cannot produce EFFICIENTLY • No country produces everything it needs to SURVIVE, & DEPENDS on other COUNTRIES • Because of INTERNATIONAL TRADE, • Americans eat FRUIT during the WINTER that is grown in CENTRAL AMERICA, & • American-made COMPUTERS are sold in AFRICA & ASIA • Trade involves: • EXPORTS: goods/services that are SOLD to other countries • IMPORTS: goods/services that are PURCHASED from other countries

  5. 9.1 – WHY NATIONS TRADE (p. 707) • Obtaining scarce goods: • Trade is one way that countries solve the problem of SCARCITY • Nations trade b/c they could not otherwise HAVE THEM or have them as CHEAPLY • U.S. IMPORTS industrial diamonds from other countries because we have almost no DEPOSITS • Other countries cannot produce commercial AIRCRAFT because they lack the necessary FACTORIES or SKILLED WORKERS, so we EXPORT them to these countries

  6. 9.1 – WHY NATIONS TRADE (p. 707-708) • Comparative advantage: • The main reason countries trade with one another is COMPARATIVE ADVANTAGE, or the ability for a country to produce a good at a RELATIVELY LOWER COSTS than another country can • Ex.: The U.S. could make TELEVISIONS, but other countries can make them at a LOWER COST; therefore, the U.S. IMPORTS televisions from abroad • Specialization: one effect of comparative advantage is that nations SPECIALIZE, or focus their SCARCE resources to produce goods/services that they can produce BETTER than OTHER COUNTRIES • Factors of production: comparative advantage can be based on NATURAL RESOURCES, LABOR, & HUMAN/PHYSICAL CAPITAL • Ex.: SAUDI ARABIA has huge deposits of OIL that allows them to EXPORT to other countries • Ex.: The U.S. has many HIGHLY SKILLED workers & ADVANCED TECHNOLOGY which gives it a comparative advantage in making EXPENSIVE products such as aircraft & WEAPONS

  7. 9.1 – WHY NATIONS TRADE (p. 708) • Creating jobs: supporters of expanded international trade argue that it creates JOBS • Because countries have comparative advantages in certain areas, they can EXPORT these products to other countries, winning more ORDERS, requiring these businesses to HIRE MORE WORKERS • Ex.: If American airplane makers only built planes for American airline companies, they would have a LIMITED MARKET; but if they EXPORT planes, they win more ORDERS, which leads to HIRE more workers

  8. 9.1 – RESTRICTIONS & INTEGRATION (p. 708) • Countries sometimes try to PROTECT their ECONOMIES by setting up TRADE BARRIERS • Many CONSUMERS like to buy FOREIGN-MADE, or IMPORTED, GOODS because they are CHEAPER than goods made in their own countries • When this happens, companies in the CONSUMER’S own country LOSE SALES, leading to LOWER PRODUCTION & LAY-OFFS of WORKERS • When this happens, affected workers & industries often DEMAND that GOVERNMENT step in & PROTECT their INDUSTRIES

  9. 9.1 – RESTRICTIONS & INTEGRATION (p. 708) • Two ways that govtsset up barriers to international trade are TARIFFS & QUOTAS • TARIFFS: TAXES on IMPORTED GOODS (also called CUSTOMS DUTIES) • Ex.: If he U.S. wants to protect American STEEL PRODUCERS, it can put a TARIFF on all important steel, thus ADDING to its price. • The goal of most tariffs is to make the PRICE of IMPORTED goods HIGHER than the price of the same goods produced DOMESTICALLY • QUOTAS: LIMITS on the AMOUNT of FOREIGN GOODS that are IMPORTED • Sometimes people want a foreign-made product so badly that HIGHER PRICES have LITTLE EFFECT, that they will PURCHASE them anyway • Ex.: During 1970s, JAPANESE-made cars were so POPULAR in the U.S., that the JOBS of American car manufacturers were threatened; Pres. Reagan eventually placed a QUOTA on Japanese-made cars to protect American car manufacturers

  10. 9.1 – RESTRICTIONS & INTEGRATION (p. 710) • Free trade: • Most policymakers in government agree that COSTS of trade barriers are HIGHER than their BENEFITS • Therefore, most countries now try to REMOVE TRADE BARRIERS • FREE TRADE: REDUCING or eliminating BARRIERS to TRADE

  11. 9.1 – RESTRICTIONS & INTEGRATION (p. 710) • Trade agreements: • EUROPEAN UNION (E.U.): organization of European countries where there are no trade barriers • GOODS/SERVICES & WORKERS move FREELY among these member COUNTRIES • In 2002, EU countries became even more closely linked when most member countries began to use a COMMON CURRENCY called the EURO • North American Free Trade Agreement (NAFTA): signed by USA, CANADA, & MEXICO • Pact to eventually ELIMINATE all TRADE BARRIERS among the three countries • OPPONENTS of NAFTA argue that American workers would LOSE their jobs because U.S. companies would move to MEXICO to take advantage of CHEAPER WAGES & less stringent laws protecting WORKERS’ rights & the ENVIRONMENT • SUPPORTERS of NAFTA argue that increased trade would stimulate GROWTH & put more LOW-COST goods on the market

  12. 9.1 – RESTRICTIONS & INTEGRATION (p. 710) • World Trade Organization (W.T.O.): • An international body that OVERSEES trade among nations • Organizes NEGOTIATIONS about trade RULES, provides HELP to countries trying to DEVELOP their economies, & settles trade DISPUTES b/w countries • Opponents argue that WTO policies favor large CORPORATIONS over WORKERS, the ENVIRONMENT, & POOR countries

  13. 9.1 – FINANCING TRADE (p. 712) • The USA uses the DOLLAR as its MEDIUM of EXCHANGE, while Mexico uses the PESO & Japan uses the YEN. • EXCHANGE RATE: the PRICE of your nation’s currency in terms of another nation’s • Exchange rates have an important effect on a nation’s BALANCE of TRADE because they are FLEXIBLE, or adjustable, and can change DAILY.

  14. 9.1 – FINANCING TRADE (p. 713) • Balance of trade: the DIFFERENCE b/w the VALUE of a nation’s EXPORTS & IMPORTS • Balance of trade = (value of EXPORTS) – (value of IMPORTS) • POSITIVE balance of trade: when the value of a nation’s EXPORTS exceeds the value of a nation’s IMPORTS • EXPORTS > IMPORTS • EXPORTS - IMPORTS > 0 • Also known as a TRADE SURPLUS • NEGATIVE balance of trade: when the value of IMPORTS coming into a country exceeds the value of EXPORTS going out of that country • EXPORTS < IMPORTS • EXPORTS - IMPORTS < 0 • Also known as a TRADE DEFICIT • Trade deficits cause the value of the DOLLAR to DECREASE in foreign EXCHANGE MARKETS, usually causing UNEMPLOYMENT in IMPORT industries & rising EMPLOYMENT in EXPORT industries

  15. 9.1 – GLOBAL INTERDEPENDENCE (p. 735) • Today, we live in an era of GLOBAL ECONOMIC INTERDEPENDENCE, in which countries depend on one another for goods, services, & natural resources • Advantages: • Business can make greater PROFITS because they have more MARKETS in which to sell • Greater COMPETITION can result in lower PRICES & a wider CHOICE of products • Disadvantages: • May force weaker companies that cannot COMPETE out of BUSINESS, hurting the ECONOMIES of some countries & costing workers their JOBS • Large corporations can out-maneuver smaller businesses by relocating to countries with less stringent laws protecting WORKERS & the ENVIRONMENT • PROTECTIONISM: protecting domestic INDUSTRIES from FOREIGN COMPETITION, usually through the use of TARIFFS or QUOTAS on imports

  16. VOCAB LOG – 9.2, 12/08 • DEMAND: desire, willingness, & ability to buy a product • DEMAND SCHEDULE: table listing various quantities demanded of a good for any given price • DEMAND CURVE: graph showing quantity demanded of a good at any given price • LAW OF DEMAND: all things equal, as price of a good increases, quantity demanded of that good decreases • UTILITY: usefulness or satisfaction we get from using a good • MARGINAL UTILITY: additional satisfaction from consuming ONE MORE UNIT of a good • SUBSTITUTE: a good that is bought in place of another good • COMPLEMENT: a good that is bought together w/ another good • DEMAND ELASTICITY: extent to which change in price of a good results in change of the quantity demanded for that good

  17. CIVICS & ECONOMICSUNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! “Almost all wars … are trade wars connected with some material interest. They are always disguised as sacred wars, made in the name of God, or civilization, or progress. But … almost all of them, have been trade wars.” – Eduardo Galeano

  18. 9.2 – INTRODUCTION TO DEMAND (p. 569) • Demand is the DESIRE, WILLINGNESS, & ABILITY to buy a good/service • Desire: consumer must WANT the good/service • Willingness: consumer must be WILLING to buy the good/service • Ability: consumer must have the RESOURCES to buy good/service

  19. 9.2 – INTRODUCTION TO DEMAND (p. 569) • Individual demand schedule & individual demand curve: • Demand schedule: a TABLE that LISTS the various QUANTITIES of a good/service that someone is WILLING to BUY over a RANGE of PRICES • Demand curve: a GRAPH that shows the AMOUNT of a good/service that would be BOUGHT at all possible PRICES in the MARKET • PRICE is drawn on the VERTICAL AXIS(or y-axis) • QUANTITY is drawn on the HORIZONTAL AXIS (or x-axis) • Each point on the curve shows the QUANTITY, or how many UNITS an individual will BUY at any particular PRICE • Each POINT on the graph should match the corresponding PRICE & QUANTITY in the DEMAND SCHEDULE • The demand curve slopes DOWNWARD, or has a negative slope • The demand curve slopes downward b/c people are normally willing to buy LESS of a good/service if the PRICE is HIGH & buy MORE if the PRICE is LOW

  20. 9.2 – INTRODUCTION TO DEMAND (p. 569) • The law of demand: • ALL ELSE BEING EQUAL, QUANTITY & PRICE move in OPPOSITE directions • People will ordinarily buy MORE of a product at a LOW price than at a HIGH price • Ex.: Increased TRAFFIC & PURCHASES at the mall whenever there is a SALE

  21. 9.2 – MARKET DEMAND (p. 570) • Market demand is the TOTAL DEMAND of ALL CONSUMERS for a good/service • Like individual consumer’s demand, market demand for a product can be shown as a demand schedule or a demand CURVE • Marginal utility: (p. 570) • Almost everything we buy provides UTILITY - or pleasure, usefulness, or satisfaction from using the product • Utility for a good/service can VARY from person to person • Ex.: You may get a great deal of enjoyment (high utility) from an iPad, but your friend may get very LITTLE • A good/service doesn’t have to have utility for EVERYONE, only for SOME

  22. 9.2 – MARKET DEMAND (p. 572) • DIMINISHING marginal utility (p. 572) • Marginal utility or marginal BENEFIT [HINT: THINK BACK TO UNIT #6] is the ADDITIONAL SATISFACTION we get from consuming ONE more UNIT of a good • Marginal utility DECREASES as more units of a good/service are consumed • Ex.: If you are really hungry before eating pizza, the FIRST slice will give you the most SATISFACTION (and you will be willing to pay a HIGHER price for it), each slice after that gives you LESS additional SATISFACTION (and you will be willing to pay a LOWER price for each additional slice)

  23. 9.2 – MARKET DEMAND (p. 572) • Because our marginal utility diminishes with each additional unit consumed, it stands to reason that we are not willing to pay AS MUCH for the SECOND unit of an item as we were for the FIRST; likewise, we are willing to pay less for the third unit as we were for the second unit • DOWNWARD slope of demand curve tells us that we are willing to pay the HIGHEST price for the FIRST unit we consume, a slightly LOWER price for the next unit, an even lower price for the third unit, and so on.

  24. 9.2 – CHANGES IN DEMAND (p. 574) • Several FACTORS can cause MARKET DEMAND for a good/service to CHANGE • These changes can be GRAPHED using a MARKET DEMAND CURVE • If there is a DECREASE in demand, the curve will shift LEFT of the original demand curve; in other words, FOR ANY GIVEN PRICE, DEMAND OF A GOOD (QD) WILL BE LESS THAN WHAT IT WAS ORINGINALLY • If there is an INCREASE in demand, the curve will shift RIGHT of the original demand curve; in other words, FOR ANY GIVEN PRICE, DEMAND OF A GOOD (QD) WILL BE MORE THAN WHAT IT WAS ORINGINALLY

  25. 9.2 – CHANGES IN DEMAND (p. 574) • Factors that determine demand: • Changes in POPULATION: • Demand for a good in a particular market area is related to the NUMBER of consumers in the area • More people in an area means HIGHER demand; the demand will INCREASE, so the demand curve shifts to the RIGHT (DEMAND INCREASES) • Fewer people in an area means LOWER demand; the demand will DECREASE, so the demand curve shifts to the LEFT (DEMAND DECREASES) • Populations can change b/c of IMMIGRATION, higher/lower BIRTH & DEATH rates

  26. 9.2 – CHANGES IN DEMAND (p. 575) • Changes in consumers’ INCOME: • If the economy is growing, consumers’ incomes will tend to INCREASE; if the economy is not growing, consumers’ incomes will tend to DECREASE • If consumers’ incomes are increasing, they will have MORE money to SPEND & they are able to buy MORE of a product at a given PRICE; the demand curve will shift to the RIGHT (DEMAND INCREASES) • If consumers’ incomes are decreasing, or they have lost their jobs, they will have LESS money to SPEND & they will be able to buy LESS of a product at a given PRICE; the demand curve will shift to the LEFT (DEMAND DECREASES)

  27. 9.2 – CHANGES IN DEMAND (p. 575) • Changes in consumers’ TASTES or preferences: • The POPULARITY of a product can affect demand • When a product becomes POPULAR, more people are willing to buy it at any given price; the demand curve will shift to the RIGHT (DEMAND INCREASES) • When a product FADES in popularity, fewer people are willing to buy it at any given price; the demand curve will shift to the LEFT (DEMAND DECREASES) • Ex.: During holiday shopping season, new product may become a “MUST-BUY” of the year, so for any given PRICE, demand will be HIGHER than what it would ordinarily be • Ex.: After Halloween, the demand for Halloween candy will DECREASE, because consumers are willing to buy LESS of it for any given price

  28. 9.2 – CHANGES IN DEMAND (p. 575) • Changes in consumers’ EXPECTATIONS: • Expectations refer to the way we think about the FUTURE • If consumers are excited about a technological breakthrough in the near future, they may be willing to buy LESS current technology; demand curve will shift LEFT (DEMAND DECREASES) • If consumers are WORRIED about the economy, they may be will to buy LESS consumer goods; the demand curve will shift to the LEFT (DEMAND DECREASES) • If consumers expect a SHORTAGE of a good, such as GASOLINE, they tend to STOCK UP on it; the demand curve will shift to the RIGHT (DEMAND INCREASES)

  29. 9.2 – CHANGES IN DEMAND (p. 575) • PRODUCT-RELATED changes: • Factors that shift demand can be related to the PRODUCTS themselves • Demand can be influenced by the PRICE or QUANTITY of RELATED PRODUCTS • Ex.: Demand for older computers DECREASES when faster models come out • Ex.: Demand for a brand of tire may INCREASE if another brand has SAFETY problems

  30. 9.2 – CHANGES IN DEMAND (p. 575-576) • Changes in the PRICE of RELATED GOODS: • Two types of related goods: SUBSTITUTES & COMPLEMENTS • Substitute goods: when consumers can use one good IN PLACE of another • Ex.: BUTTER & MARGARINE; hot dogs & hamburgers • If price of one good increases, demand for the other good will INCREASE & the demand curve will shift to the RIGHT; if the price of one good decreases, demand for the other good will DECREASE & the demand curve will shift to the LEFT • Complementary goods: when consumers buy goods that are USED TOGETHER • Ex.: lightbulbs & LAMPS, peanut butter & JELLY • If price of one good increases, demand for the other good will DECREASE & the demand curve will shift to the LEFT; if the price of one good decreases, demand for the other good will INCREASE & the demand curve will shift to the RIGHT

  31. 9.2 – CHANGES IN DEMAND (p. 576) • Change in quantity demand: Different from increasing or decreasing demand • Change in demand refers to a SHIFT of the ENTIRE demand curve • Change in quantity demanded refers to MOVEMENT from one point on a demand curve to another • Only factor that directly causes a change in quantity demanded is PRICE

  32. 9.2 – ELASTICITY OF DEMAND (p. 577-578) • Demand elasticity: the extent to which a change in PRICES causes a change in the QUANTITY DEMANDED of a good/service (HOW STRETCHY IS DEMAND WHEN PRICE CHANGES) • Which items have elastic demand? (Small price changes can have a BIG effect on quantity demanded) • When there are ATTRACTIVE SUBSTITUTE goods that consumers could buy instead • When consumers can DELAY purchasing an item because they think prices will go down • For EXPENSIVE, or higher-priced items, like cars

  33. 9.2 – ELASTICITY OF DEMAND (p. 577-578) • Which items have inelastic demand? (Large price changes can have a SMALL effect on quantity demanded) • SEASONAL items (items that people ordinarily consume at certain times of the year) • Items with few SUBSTITUTES (medicines, electricity, etc.) • NECESSITIES, or things needed for survival or health • AFTER NOTES, HAVE OUT THE GREEN EXIT TICKET

  34. VOCAB LOG – 9.3, 12/09 • SUPPLY: quantity of good/service producers/suppliers are willing to sell at all possible market prices • SUPPLY CURVE: graph that shows the amount of good/service that would be supplied at all possible market prices • SUPPLY SCHEDULE: table that shows amount of good/service that would be supplied at various market prices • MARKET SUPPLY: combined supply schedule for all suppliers of good/service • LAW OF SUPPLY: producers are willing to offer more for sale at higher prices & less at lower prices (prices & quantity supplied change in same direction) • PROFIT MOTIVE: main incentive for producers is to earn more than what they spend making a good/service (that revenues will exceed costs) • PRODUCTIVITY: greater efficiency; more output (production) at lower cost • SUBSIDY: govt payment to indv or business for certain actions • SUPPLY ELASTICITY: measure of how quantity supplied of a good/service changes in response to price changes

  35. CIVICS & ECONOMICSUNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! “No one wants advice – only corroboration [agreement].” – John Steinbeck

  36. 9.3 – INTRODUCTION TO SUPPLY (p. 581) • Supply refers to the various QUANTITIES of a good/service that PRODUCERS are willing to SELL at any given market PRICE • We can consider supply as an OUTPUT of a single BUSINESS or PRODUCER OR ADD together the supply of the ENTIRE MARKET • Supply is the OPPOSITE of demand • BUYERS demand different QUANTITIES of a good depending on the PRICE sellers ask • SELLERS offer different QUANTITIES of a good depending on the PRICE buyers are willing to pay

  37. 9.3 – INTRODUCTION TO SUPPLY (p. 581) • Law of supply: • As the PRICE rises or increases for a good, the QUANTITY SUPPLIED (QS) also INCREASES; price and quantity supplied change in the SAME direction • The HIGHER the price of a good, the greater the INCENTIVE is for a producer to produce MORE of that good • Like demand, individual and market supply can be represented in a TABLE as a SUPPLY SCHEDULE and in a GRAPH with the SUPPLY CURVE • While demand curve has a DOWNWARD (or negative) slope, the supply curve has an UPWARD (or positive slope), reflecting the fact that suppliers/producers are generally willing to offer MORE goods/services at a HIGHER price than at LOWER prices

  38. 9.3 – GRAPHING THE SUPPLY CURVE (p. 583-584) • Profit motive: • Businesses invest TIME, MONEY, & other CAPITAL & RESOURCES to make money • Businesses try to set prices at levels that allow them to COVER COSTS; otherwise, they will LOSE MONEY (REVIEW: their COSTS will exceed their REVENUES, and they will incur a LOSS) • Businesses try to earn a PROFIT that is OVER and ABOVE its COSTS • Making a profit is the primary MOTIVE, or purpose, for a business • Producers can then use these profits to: increase WAGES of employees, INVEST money in new business projects, acquire more SPACE, buy new EQUIPMENT (or PHYSICAL capital), or hire new WORKERS (or LABOR)

  39. 9.3 – GRAPHING THE SUPPLY CURVE (p. 583-584) • Market supply: the total combined SUPPLY SCHEDULE of all businesses that provide the SAME good/service • MARKET SUPPLY CURVE HAS AN UPWARD (OR POSITIVE) SLOPE [MARKET DEMAND CURVES HAVE A DOWNWARD (OR NEGATIVE) SLOPE] • Like the demand curve, the supply curve or supply can be affected by various factors, causing it to shift to the LEFT or RIGHT

  40. 9.3 – CHANGES IN SUPPLY (p. 584-585) • The PROFIT INCENTIVE (or profit motive) is motivates producers to change supply levels at a given price • Like changes in demand: • An INCREASE in supply will cause the supply curve to shift to the RIGHT, b/c producers are willing to sell a HIGHER QUANTITY of goods at any given price compared to the original supply curve • A DECREASE in supply will cause the supply curve to shift to the LEFT, b/c producers are willing to sell a LOWER quantity of goods at any given price compared to the original supply curve

  41. 9.3 – CHANGES IN SUPPLY (p. 584-585) • Factors that affect the supply curve: • COSTS of RESOURCES: costs of raw materials and other FACTORS of PRODUCTION • When costs of resources to produce goods/services decrease, suppliers can make a larger PROFIT at the same price for each unit sold, so they are willing to sell MORE at any given market price (SUPPLY INCREASES  SUPPLY CURVE SHIFTS RIGHT) • When costs of resources to produce goods/services decrease, suppliers make a smaller PROFIT at the same price for each unit sold, so they are willing to sell LESS at any given market price (SUPPLY DECREASES  SUPPLY CURVE SHIFTS LEFT)

  42. 9.3 – CHANGES IN SUPPLY (p. 585) • PRODUCTIVITY: • When workers are more productive, businesses’ costs DECREASE, allowing suppliers to make a larger PROFIT for each unit sold, so they are willing to sell MORE at any given market price (SUPPLY INCREASES  SUPPLY CURVE SHIFTS RIGHT) • When workers are less productive, businesses’ costs INCREASE, forcing suppliers to make a smaller PROFIT for each unit sold, so they are willing to sell LESS at any given market price (SUPPLY DECREASES SUPPLY CURVE SHIFTS LEFT) • TECHNOLOGY: new METHODS & PROCESSES that can SPEED up ways of doing business & CUT COSTS • New technology that cuts costs allows suppliers to larger profit at the same price for each unit sold, so suppliers are willing to sell MORE at any given market price (SUPPLY INCREASES SUPPLY CURVE SHIFTS RIGHT)

  43. 9.3 – CHANGES IN SUPPLY (p. 585) • GOVERNMENT POLICIES & increasing TAXES: increased government REGULATIONS restrict, or LIMIT, supply b/c they cause they usually cause suppliers’ costs to INCREASE (ex.: rise in MINIMUM WAGE, or new SAFETY REGULATIONS) • New government regulations or taxes can increase PRODUCTION COSTS to suppliers, so that suppliers make a smaller profit at the same price for each unit sold, so they are willing to sell LESS at any given market price (SUPPLY DECREASES  SUPPLY CURVE SHIFTS LEFT)

  44. 9.3 – CHANGES IN SUPPLY (p. 585) • SUBSIDIES: government PAYMENTS to INDIVIDUALS, BUSINESSES, & other groups for certain actions • Subsidies lower production costs to suppliers, so that suppliers make a larger profit at the same price for each unit sold, so they are willing to sell MORE at any given market price (SUPPLY INCREASES  SUPPLY CURVE SHIFTS RIGHT) • EXPECTATIONS: • If producers expect CONSUMER DEMAND to decrease in the FUTURE, they will supply LESS (SUPPLY DECREASES  SUPPLY CURVE SHIFTS LEFT) • If producers expect consumer demand to increase in the future, they will supply MORE (SUPPLY INCREASES  SUPPLY CURVE SHIFTS RIGHT) • NUMBER of SUPPLIERS: • The larger the number of suppliers, the GREATER the market supply (SUPPLY INCREASES  SUPPLY CURVE SHIFTS RIGHT) • If suppliers leave the market, market supply goes down (SUPPLY DECREASES SUPPLY CURVE SHIFTS LEFT)

  45. 9.3 – ELASTICITY OF SUPPLY (p. 585) • Supply elasticity measures how the QUANTITY SUPPLIED of a good/service changes in RESPONSE to a change in PRICES • If the quantity supplied changes a great deal when prices change, that good is said to be SUPPLY ELASTIC • Usually, goods that can be made QUICKLY and do not require huge amounts of CAPITAL or SKILLED LABOR to produce that good are supply ELASTIC (such as CANDY or most other FOODS, especially during special HOLIDAY times throughout the year) • If the quantity supplied changes very little when prices change, that good is said to be SUPPLY INELASTIC • Usually, goods that require suppliers/producers to INVEST large sums of money to produce that good are supply INELASTIC (such as OIL) • AFTER NOTES, HAVE OUT THE GREEN EXIT TICKET

  46. VOCAB LOG – 9.4, 12/12 • SURPLUS: situation in which quantity supplied exceeds quantity demanded; signals that prices are too high • SHORTAGE: situation in which quantity demanded exceeds quantity supplied; signals that prices are too low • EQUILIBRIUM PRICE: price at which amount producers are willing to sell equals amount consumers are willing to buy • PRICE CEILING: maximum price that can be charged for a good/service, set by govt, usually below equilibrium price & often resulting in shortages • PRICE FLOOR: minimum price that can be charged for a good/service, set by govt, usually above equilibrium price & often resulting in surpluses • MINIMUM WAGE: lowest legal wage that can be paid to workers; price floor set for workers who supply their labor to employers

  47. CIVICS & ECONOMICSUNIT #9: FOUNDATIONS OF ECONOMICS (PART II) QUOTE OF THE DAY! “There is no substitute for hard work.” – Thomas Edison

  48. DIRECTIONS: • ALL BOOKS OPEN TO PAGE 588-589 • I WILL READ ALOUD AS YOU FOLLOW ALONG • WHEN I AM FINISHED, INDIVIDUALLY OR WITH A PARTNER BESIDE YOU RE-READ AND COMPLETE THE PORTION OF NOTES DESIGNATED BY MR. K. • IF YOU HAVE TROUBLE WITH BLANKS AFTER RE-READING, PLEASE RAISE YOUR HAND & CONTINUE MOVING ON TO EFFECTIVELY MANAGE YOUR TIME • WHEN TIME IS CALLED, YOU WILL EXACTLY TWO MINUTES TO CHECK YOUR WORK ON THE SLIDES PROVIDED. • THESE SLIDES ARE NOT FOR YOU TO COPY BECAUSE OF INEFFECTIVE TIME MANAGEMENT. • AFTER THE TWO MINUTES IS CALLED, WE WILL MOVE ON TO THE NEXT SECTION • IF YOU MISS NOTES, PLEASE CHECK THE WEBSITE kcivecon.weebly.comOR ASK TO BORROW A SLIDE PACKET AT THE END OF NOTESOR BORROW NOTES FROM A FRIEND • YOU CAN COMPLETE THESE SUCCESSFULLY BY REMAINING ON TASK

  49. 9.4 – MARKETS & PRICES (p. 588-589) • The opposing forces of SUPPLY & DEMAND work together in the market to establish PRICES • In our economy PRICES form the basis of ECONOMIC DECISIONS

  50. 9.4 – MARKETS & PRICES (p. 588-589) • Price adjustment process: • Markets consist of all BUYERS & SELLERS of a product • We label the demand curve as D(REVIEW: DEMAND CURVE HAS A DOWNWARD SLOPE) • We label the supply curve as S(REVIEW: SUPPLY CURVE HAS AN UPWARD SLOPE) • Where these curves INTERSECT determines the PRICE & QUANTITY of product sold • Surplus: the amount by which the quantity SUPPLIED exceeds, or is higher, than the quantity DEMANDED • The surplus is shown as the HORIZONTAL distance between SUPPLY & DEMAND curves at any price ABOVE where the curves INTERSECT • Signals that prices are too HIGH, & that consumers are UNWILLING to pay the PRICE in large enough numbers to SATISFY producer’s output • In a COMPETITIVE market, a surplus will not EXIST for long; suppliers will have to LOWER their PRICES if they want to SELL all of their product

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