Econ 102 Notes - Supply and Demand Part 2 Keith S Evans...

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Supply and Demand Part 2 Keith S. Evans Iowa State University January 27, 2009 Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 1 / 42 Today we will touch on some key topics: Supply versus Quantity Supplied Market Equilibrium Market Interventions Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 2 / 42
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Quantity Supplied - Q s Definition The quantity supplied is the amount of a good or service that a firm is willing and able to supply at a given price. In this course, we will us Q s to denote quantity demanded. Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 3 / 42 Supply schedules Definition The supply schedule is a table that shows the relationship between the price of a product and the quantity of the product supplied. Supply of iPhones Price Q s ($ per phone) (Millions of phones per month) 800 60 700 50 600 40 500 35 400 25 300 15 200 0 Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 4 / 42
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The Supply Curve Definition The supply curve shows the quantity of a good or service that producers are willing and able to sell at each given price. NOTE: Supply describes the behavior of sellers at every price, where quantity supplied describes the behavior at a particular price. Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 5 / 42 Individual Supply Each seller in the market has their own supply. This individual supply denotes their willingness to accept. Individual Supply of Umbrellas Price Q d ($ per unit) (# per wk) U-Shop 2.50 25 2.00 17 1.80 13 1.60 10 1.40 3 1.00 0 Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 6 / 42
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Individual Supply Goal of firm: maximize profit - π = P · Q s - C ( Q s ). In a perfect competition, the firm takes price as given Set Q s such that MR = MC Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 7 / 42 Individual Supply to Market Supply Definition market supply is the sum of all firms supply curves for a good or service. Price Q d Q d Q d Q d ($ per unit) (# per wk) (# per wk) (# per wk) (# per wk) U-Shop Rain-E-Daze Silver Lining Total 2.50 25 20 25 70 2.00 17 13 16 46 1.80 13 9 12 34 1.60 10 5 6 21 1.40 3 0 1 4 1.00 0 0 0 0 Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 8 / 42
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Law of Supply There is a general upward slope to market supply. Definition The law of supply is the rule that, holding everything else constant, increase in price cause increased in quantity supplied, and decreases in price cause decrease in quantity supplied. A change in price causes a change in quantity supplied. Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 9 / 42 Shifters of Market Supply There are six main factors that bring changes in supply ( shift the curve) 1 Price of Inputs 2 Technological Change 3 Prices of Substitutes in Production 4 Prices of Complements in Production 5 Number of Firms in the Market 6 Expected Future Prices Keith S. Evans (Iowa State University) Supply and Demand Part 2 January 27, 2009 10 / 42
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Price of Inputs Definition An input is anything used in the production of a good or service.
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