1	Supply & Demand Supply- The relationship of price(s) to the quantities of goods or services sellers are willing to offer for sale at any given point in time. Demand- The relationship of price(s) to the quantities of goods or services buyers are willing to purchase at any given point in time.
2	Supply Relationship between supply and price A falling price reflects higher opportunity costs for sellers! What is the result? Firms Supply LESS A rising price reflects lower opportunity costs for sellers! What is the result? Firms Supply MORE Higher price allows for incurring extra (marginal) unit costs Producers may switch from less profitable goods Long-term--new firms encouraged to enter market
3	Law of Supply The quantity of goods supplied will be greater at a higher price than it will be at a lower price.
4	Law of Supply Compared to Law of Demand Demand INVERSE RELATIONSHIP PRICE QUANTITY PRICE QUANTITY Supply SYMPATHETIC RELATIONSHIP PRICE QUANTITY PRICE QUANTITY
5	Supply Curve A graphic illustration of the relationship between the total quantity of a product or service that all firms in a market will make available (produce) for sale at various prices.
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12	Supply Causes of change in supply… costs of production (inputs) technological changes (leading to increase in productivity) Other profitability alternative products goods in joint supply external variables (nature/war) goals & expectations of producers
13	Movements along and shifts in the supply curve Change in quantity supplied due to change in price…
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16	Price Elasticity of Supply Measures the responsiveness of the quantity supplied to changes in the product’s price.
17	Supply Production drives supply Production makes it possible to meet consumer demand
18	Four Factors of Production Land—broad category that includes all natural resources that contribute to production Labor—the human factor of production Capital—previously produced goods used to produce other goods Entrepreneurship—managerial ability and risk-taking
19	Demand, Supply & Prices Equilibrium: Demand and Supply in Balance Equilibrium Price (Market Price): The price at which the quantity demanded is equal to the quantity supplied Response to shortages and surpluses significance of “equilibrium”
20	The determination of market equilibrium (CDs: monthly)
21	The Determination of Price Equilibrium price and output response to shortages and surpluses significance of “equilibrium” Demand and supply curves effect of price being above equilibrium Surplus ® price falls
22	The determination of market equilibrium
23	The Determination of Price Equilibrium price and output response to shortages and surpluses significance of “equilibrium” Demand and supply curves effect of price being above equilibrium surplus ® price falls effect of price being below equilibrium
24	The Determination of Price Equilibrium price and output response to shortages and surpluses significance of “equilibrium” Demand and supply curves effect of price being above equilibrium surplus ® price falls effect of price being below equilibrium shortage ® price rises
25	The determination of market equilibrium
26	The Determination of Price Equilibrium price and output response to shortages and surpluses significance of “equilibrium” Demand and supply curves effect of price being above equilibrium surplus ® price falls effect of price being below equilibrium shortage ® price rises equilibrium: where D = S
27	The determination of market equilibrium
28	The Determination of Price Effects of shifts in the demand curve movement along S curve and new D curve rise in demand (rightward shift) ® P rises fall in demand (leftward shift) ® P falls
29	Effect of a shift in the demand curve
30	Effect of a shift in the demand curve
31	Effect of a shift in the demand curve
32	Effect of a shift in the demand curve
33	The Determination of Price Effects of shifts in the demand curve movement along S curve and new D curve rise in demand (rightward shift) ® P rises fall in demand (leftward shift) ® P falls Effects of shifts in the supply curve
34	The Determination of Price Effects of shifts in the demand curve movement along S curve and new D curve rise in demand (rightward shift) ® P rises fall in demand (leftward shift) ® P falls Effects of shifts in the supply curve movement along D curve and new S curve
35	The Determination of Price Effects of shifts in the demand curve movement along S curve and new D curve rise in demand (rightward shift) ® P rises fall in demand (leftward shift) ® P falls Effects of shifts in the supply curve movement along D curve and new S curve rise in supply (rightward shift) ® P falls
36	The Determination of Price Effects of shifts in the demand curve movement along S curve and new D curve rise in demand (rightward shift) ® P rises fall in demand (leftward shift) ® P falls Effects of shifts in the supply curve movement along D curve and new S curve rise in supply (rightward shift) ® P falls fall in supply (leftward shift) ® P rises
37	Effect of a shift in the supply curve
38	Effect of a shift in the supply curve
39	Effect of a shift in the supply curve
40	Effect of a shift in the supply curve
41	The Production Function Marginal Product (MP) = Incremental Output generated by adding one more unit of variable input Costs Fixed = costs incurred that are constant regardless of production Variable = costs that change as production needs vary Total Costs (TC) = Fixed Cost + Variable Cost Average Total Cost (ATC) = TC/Qty Marginal Cost = (Increase in Variable Costs) Change VC/MP
42	The Production Function Total Revenue = # units sold x price Marginal Revenue (MR) = Incremental Revenue generated by the sale of one additional unit produced. Rules of Thumb: MR>MC continue to produce MR=MC maximum profitability MC>MR stop
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45	Problem #1 What are the issues regarding Demand What are the issues regarding Supply What factors of demand (from notes) are influencing employers to find new sources What factors of supply (from notes) are influencing the move to find new sources Plot a demand and supply curve from available information. Can you locate the point of equilibrium?