SUPPLY AND DEMAND

OPENER: On a piece of paper, write down how much you wou d !e wi in" to #e your #hoe# $ the one# you are wearin" ri"ht now% &% An 'ntroduction to Supp y a. DEFINED: Supply is the amount of a product that would be offered for sale at all possible prices in the market. b. The Law of Supply states that suppliers will normally offer more for the sale at hi h prices and less at lower prices. i. !sk for real"life e#amples from students c. !n indi$idual supply cur$e illustrates how the %uantity that a producer will make $aries dependin upon the price that will pre$ail in the market. d. ! market supply cur$e illustrates the %uantities and prices that a producer# will offer in the market for any i$en product of ser$ice. i. See chart on pa e &&'.

e. Notice that the supply cur$e on a chart has an ()*!+D SL,)E -more offered at hi her price. f. Supply is producer based /. 0(ESTI,N: E#plain how prices and %uantities mo$e in the same direction in a supply schedule1 a. (Producers will producer high quantities at the highest prices and low quantities at the lowest prices). Because they like to make ah-money! High Five!

(Pa"e# &&)*&&+, -% .han"e in the /uantity Supp ied

a. Defined: ! chan e in the %uantity supplied is the chan e in the amount offered for sale in response to a chan e in price. b. )roducers ha$e the freedom. i. They can slow or stop production if prices fall too low. ii. They can lea$e the market completely. iii. They can raise production le$els if the price rises. &. 2I3E 4E ! +E!L LIFE E5!4)LE F,+ E!67:
i. 3ideo 2ame: 8*hiner9 &. The ame isn:t sellin well; so retailers are cuttin the price. !s a result; 7arwood Interacti$e cuts<slows production. /. The ame is a hu e failure and embarasment to the company. 7arwood Interacti$e lea$es the $ideo ame market completely. =. It:s a top seller. E$eryone wants it. The price oes up; and production is increased.

0% .han"e in the Supp y a. ! chan e in supply is when suppliers offer different amounts of product for sale at all possible prices in the market. b. Factors that can cause a chan e in supply include: i. 6ost of inputs -factors of production. ii. )roducti$ity le$els. iii. Technolo y i$. Ta#es -or le$el of subsidies. $. E#pectations $i. 2o$ernment re ulations
The 7arwood 6orporation has >ust launched its newest product ? the Smellophone. It:s a cell phone that lets users capture and send odors wirelessly. The desi ners hope to re$olutioni@e smell sharin ; much like camera phones ha$e done for earlier models. Initial phones will be priced competiti$ely at AB'.''. C. !fter si# months; as many analysts in the telecommunications predicted; this product is not sellin as many units as producers hoped. !s a result; retailers ha$e dropped the price to A='.'' to better sell the product. (sin what you learned in class; the 7arwood 6orporation will likely do any of the followin ; E56E)T: A% D. 6. D. 'ncrea#e production% Slow production. Stop production. Lea$e the market completely.

+% The phone is sellin better than most analysts e#pected. Doyfriends are buyin the phone to send irlfriends flower and colo ne scented te#t"messa es. Drothers are wirelessly sendin each other last ni ht:s recycled chili do ; and parents are makin their teens blow into the phone three times a ni ht to check for the smell of alcohol. The first shipments sold out and retailers plan to raise the price to AC'.''. (sin what you learned in class; the 7arwood 6orporation will likely do which of the followin 1 !. D. 6. D. Increase production% Slow production. Stop production. Lea$e the market completely.

B. DIS6(SSI,N 0(ESTI,N: *hy does usin new technolo y almost always increase supply1 - sually leads to greater e!!iciency)