Unit 2 Economics Microeconomics Supply and Demand Essential

Unit 2 Economics Microeconomics: Supply and Demand

Essential Question: • Explain the Law of Supply and how changes in our society result in shifts in producer’s willingness and ability to provide goods and services. • Give specific examples of real world events that would result in shifts in supply for particular products.

Determinants of Elasticity • Substitutability (more substitutes = more elastic) • Proportion of Income (larger the portion of income = more elastic) • Luxuries (more elastic) versus Necessities (less elastic/inelastic) • Time (more time = more elastic)

Relatively Elastic Demand • Total Revenue (TR) TR = P x Q Elastic Demand (lower prices = higher total revenue, higher prices = lower total revenue, Inverse relationship) P $3 a 2 b 1 D 1 0 10 20 30 40 Q

Relatively Inelastic Demand • Total Revenue (TR) TR = P x Q Inelastic Demand (lower prices = lower total revenue, higher prices = higher total revenue, direct relationship) P c $4 3 2 d 1 D 2 0 10 20 Q

Elasticity of Demand • https: //www. youtube. com/watch? v=HHcbl. Ixi AAk

Unit Elasticity • Total Revenue (TR) TR = P x Q Unit-Elastic (changes in price do not change total revenue) P e $3 2 f 1 D 3 0 10 20 30 Q

Price Elasticity of Demand Extreme Cases Perfectly Inelastic Demand P D 1 Perfectly Inelastic Demand (Ed = 0) 0 Q Perfectly Elastic Demand P 0 Perfectly Elastic Demand (Ed = ∞) D 2 Q

Demand Supply • https: //www. youtube. com/watch? v=RP 0 j 3 Lnl azs

Supply • Definition – amount of a product or service that producers are willing and able to make at various prices • Law of Supply – as prices rise, quantities supplied rise, as prices fall, quantities supplied fall (direct relationship) ØA change in the price of a product results in a change in the QUANTITY SUPPLIED! (it does NOT shift Supply)

Supply • https: //www. youtube. com/watch? v=ew. PNug. I q. CUM

Supply Curve • Definition: a graph showing the various combinations of prices and quantities supplied

Supply Curve • https: //www. youtube. com/watch? v=n. Kvrb. Oq 1 Of. I

Supply Schedule • Definition: table/chart listing the quantities that will be produced at each price

Supply Schedule • https: //www. youtube. com/watch? v=kidj. Ni. Zp T 8 Y

Individual Supply P 6 Individual Supply Qs 60 4 50 3 35 2 20 1 5 5 Price (per bushel) P $5 S 1 4 3 2 1 0 10 20 30 40 50 60 Quantity Supplied (bushels per week) 70 Q

Individual Supply Determinants of Supply (factors that cause a shift or a change in Supply) • Resource Prices (inputs) • Productivity • Technology • Taxes and Subsidies • Government Regulation • Producer Expectations • Number of Sellers Ø If it becomes cheaper, easier, or faster to make products, then supply will increase Ø If it becomes more difficult, more expensive, or slower to make products then Supply will decrease

Individual Supply Can Increase or Decrease P 6 Individual Supply Qs 60 4 50 3 35 2 20 1 5 5 Price (per bushel) P $5 S 3 S 1 S 2 4 3 2 1 0 2 4 6 8 10 12 Quantity Supplied (bushels per week) 14 Q

Essential Question: • Explain the Law of Supply and how changes in our society result in shifts in producer’s willingness and ability to provide goods and services. • Give specific examples of real world events that would result in shifts in supply for particular products.