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This 3 page Class Notes was uploaded by Amadeo Notetaker on Tuesday January 12, 2016. The Class Notes belongs to Econ 232 at Western Illinois University taught by Devereueawax J E in Spring 2016. Since its upload, it has received 22 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Western Illinois University.
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Date Created: 01/12/16
Supply Law of Supply: when the Price of a product increases, the Quantity Supplied (Qs) of the product increases as well, and vice versa. Quantity Supplied (Qs) is the amount of a good or service that a firm is willing and able to purchase at a given Price. Changes in Quantity Supplied Movements: increases or decreases in the quantity supplied of a good. Occurs when there is a change in the price for that specific good. Shifts: increases or decreases in Supply. Occurs when there is a change in variables other than the price. Rightward shift = Increase in Supply. Leftward shift = Decrease in Supply. Change Effect Terminology Upward movement along P Qs the S curve Downward movement along P Qs the S curve Left/Right Shift NonPrice Determinant S or S NonPrice Determinants Anything that causes Cost to increase will cause a decrease in Supply, and vice versa: Prince of Inputs: (input: anything used in the production of a good or service. For example: mozzarella, peperoni, sauces, etc. of a pizza.) If the prince of input (P.input) increases, the Supply of the product decreases, and vice versa. Technological changes: change in the ability to produce a given level of output with a certain amount of input. Therefore, as technology increases, supply increases as well, and vice versa. Price of Substitutes in Production: (substitutes are alternative products that a firm could produce.). If the price of a substitute increases, the supply of the product decreases, and vice versa. Number of Firms: as the number of firms increase, the Supply increases, and vice versa. Expected Future Prices: if a firm expects the price of a product to increase in a future, the supply today of the product decreases, and vice versa. Line Equation: y = mx + b P = mQs + b Inverse Supply Equation (b = minimum selling prince: lowest price that a firm needs to start production. When x = 0). (m = Rise/Run = Increase Y/ Increase X) Qs = P/m b/m Supply Equation Market Equilibrium Is the interaction between sellers and buyers in markets such that price results in “market clearing” (situation where every unit supplied (Qs) is purchased by a buyer (Qd)). Therefore, Qd = Qs. If in a market of a product consumers are demanding more than units supplied (Qd > Qs), we have a situation called Shortage. The quantity demanded exceeds the quantity supplied. In order to fix this situation of shortage, firms increases the price, so that Qd decreases and Qs increases, until equilibrium is reached. On the other hand, if in a market consumers are demanding less than what is being supplied (Qd < Qs), we have a situation of Surplus. The quantity supplied exceeds the quantity demanded. In order to fix this, firms decrease the price, so Qd is going to increase and Qs decrease, until equilibrium is reached. Example: If Qd = 500 and Qs = 200: There is a Shortage of 300 units! If Qd is 30 and Qs is 70: there is a Surplus of 40 units!
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