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Supply for Students
Will We Have
C hange

in

Boings

QD [ inverse] or C hange
[direct]

in

QS

[caused by a “change in price ”]

or a
Swoosh

“Change in D ” caused by “TIMER ”
“C hange in S” caused by “RATNEST ”
Increase in “QD”

[caused by a “decrease in price”]

D

Decrease in “QD”
[caused by an “increase in price”]

D
1. Price change
2. Movement
3. Point to point

P1
P2

[“Snap

shot of 1 pt in time]

P2
P1
QD2 QD1

QD1 QD2

D1 D2
P

Change in “D” [“TIMER”]
1. Non-price
2. Whole curve
3. Shift

D1

P

D2

[“Time passes”]

“Decrease in D”
“Increase in D”
hat could cause an “increase in Demand?” 5. Expectations of a shortage
ncrease in taste
6. Expectations of a price increase
ncrease in income [normal good]
7. Expectations of positive future income
good
Decrease in income [inferior good]
8. Incr in price of a substitute for product “X”
good
ncrease in market size [# of consumers]
9. Decr in price of a complement of product “X”
consumers
Decrease in “QS”

Increase in “QS”

[caused by a “decrease in price”]

P1

S

P2

[caused by an “increase in price”]

1. Price change
2. Movement
3. Point to point
[“Snap

S

P2
P1

shot of 1 pt in time]

QS1 QS2

QS2 QS1

Change in “S” [RATNEST]

S1
S2
P
“Increase in S”

1. Non-price
2. Whole curve
3. Shift
[“Time passes”]

hat could cause an “increase in supply?”
Decrease in resource cost [wages/raw materials]
Decrease in the price of an alternative output for “X”
Producer expectations of a price decrease

P

S2 S1

“Decrease in S”
4. Increase in number of producers
5. Increase in technology
6. Increase in subsidies
7. Decrease in taxes
Deriving Market Supply from Individual Firm Supply Curves
Firm A’s Supply
$3

S

Firm B’s Supply

S

$3

10,000 30,000
QS1
QS2
Soybeans [bushels]

S

$3
$2

$2

$2

Firm C’s Supply

10,000 25,000
QS1
QS2

5,000 10,000
QS1 QS2

Soybeans [bushels]

Soybeans [bushels]

Direct – both variables move in same direction.

S

$3

“Particular Price”

$2
25,000
QS1

65,000
QS2

Soybeans [bushels]
Price increases; QS increases
increases
Price decreases; QS decreases
decreases
.

Direct

“S” refers to the “whole supply curve” and refers to what
producers will supply at “different prices”.
“QS” refers to a “point on the curve” and refers to what
producers will supply at a “particular price”.

S

P2
P1
Producers want the
highest price possible.

Change in “QS”
1. Price change
2. Movement

(up/down “S” curve)

3. Point to point
(along “S” curve)

QS1 QS2

Reasons For Upsloping “S” Curve

1. There is increasing opportunity cost if you don’t produce.
2. Current producers produce more [overtime/more shifts]
3. New producers are attracted to the market.
S

P

$5

$2

Existing suppliers of DVD
Rentals are willing to supply
more as the price increases
& others [Albertson’s] are
attracted to the market.

10,000

65,000
If QS>QD; Price Decreases
If QS<QD; Price Increases
If QD=QS; Price Stays Same

Dollar
Price

$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
0

D

QD
QD

Price Floor
Surplus
E

QS

S

QS

120 =120

QD=QS

QS
QS

70

Price Ceiling QD
Shortage
QD

175

20 40 60 75 100 120 140 160 180 200 220
Quantity (units of any good or service)
$5

D

S

$4
$3
$2
$1
0

1 2

4

6 7 8 9 10 11 12

14

16

Quantity Supplied and Demanded (Thousands)
Aggieland Football Season Tickets

$90
Why do the Ags
have a scoreboard
on the outside of
the stadium?
The Aggies have a scoreboard outside so that the 5 Reveilles
who are buried outside the stadium can see the scoreboard.

The Aggie War Hymn
Hullabaloo, Caneck, Caneck
Hullabaloo, Caneck, Caneck
Good bye to texas university

The 5 mascots are ranked as
5-Star generals and are buried
facing the scoreboard.
scoreboard

The Plaque says this:
“Reveille 1st, and the other Reveilles
They are the boys who show the real old fight that follow her, will always have a
‘the eyes of Texas are upon you’ special place in an Aggie’s heart and
That is the song they sing so well symbolize the undying spirit of
Texas A&M.”
A&M
So long to the orange and the white
Good luck to dear old Texas Aggies

Sounds Like hell
So good bye to texas university
We’re gonna beat you all to
Chigaroogarem
Chigaroogarem

Rough, Tough, Real stuff, Texas A&M
Supply

(& Demand)

“Bread & Butter” of Economics

[“perfectly competitive markets”]
Direct – price and QS move in the same direction.
(increase together or decrease together)

S

The Law of Supply says
QS varies directly with price.

P2

The Law Of Demand says
QD varies inversely with price.

P1
QS1

QS2
Supply

& Demand [Bread & Butter of Econ]
[assuming “perfectly competitive markets”]
[No individual can control price.]
“I want a clean
diaper.”

The law of supply and demand is learned in
infancy. Infants demand clean diapers and
are willing to supply peace and quiet in
exchange. Mothers demand peace and quiet
exchange
and are willing to supply clean diapers in
exchange. The terms of trade are arranged.
exchange
“One scream equals one diaper.
The price of one diaper is one scream.”
Supply – producers “willingness to sell.” Or, the
“amount of products offered at each price during
a specific time period.”
Supply (and Demand)
Bread

“Bread & Butter” of Economics
[“perfectly competitive markets”]

Butter

Law of Supply – QS varies directly with price.
price

Suppliers offer more for sale at higher prices
than at lower prices. The consumers, being
consumers
on the paying end, tend to buy a small
amount of the product, but will buy more if
the price is lowered. The supplier, on the
lowered
supplier
receiving end, considers price as an incentive
to sell a product. The higher the price, the
more incentive he has.
“Let’s make more.”

- As price increases
…Q S also increases
-As price decreases
… QS also decreases
“Take it. We are losing money.”

S

P2
P1

QS1 QS2

S

P1
P2

QS2 QS1

Direct relationship between P & QS
45. Elastic Supply – a small increase/decrease in price
45
causes significant change in QS. Elastic supply is very responsive
to price changes.

astic (Flexible) Supply
Can be made quickly
Little expense (few
capital resources required)
(47) Unskilled workers
Long time
Don’t need scarce
natural resources
xamples: (50) T-shirts, hats,
T-shirts
hot glasses, and posters

Inelastic (Inflexible) Supply
1. Cannot be made quickly
2. Great Expense (large capital
resources required)
3. (48) Skilled workers
4. Short time
5. Scarcity of natural resources
Examples: Gold, diamonds,
and (49) computers
46. Inelastic Supply - regardless of price, producers are

unwilling/unable to increase/decrease QS. (QS is inflexible
and unresponsive to price changes)
51. Elastic supply
51
results in a more
horizontal line &
52. inelastic
52
supply results in
a more vertical
line.

Elastic supply is very
responsive to price &
inelastic supply is
unresponsive to price.

0

1000 2000 3000 400 5000
I only
Change in “Supply” [Curve]
1.
have “Non-price change” [RATNEST]
2002. Whole supply curve “shifts”
.
[There was a QS change but it was not caused by a change in price]
acres
P2

Corn

Broccoli
S

P1

P

S2

S1

Alternative Output Price Change
[INVERSE]
“Substitutes in production”
S1 S2
P

QS1 QS2

“Supply Shifters” [RATNEST]

1. Resource Cost [wages
/raw materials
] [INVERSE]
2. Alternative Output Prices [INVERSE]
3. Technology [DIRECT]
DIRECT
[new football league- bigger “S” of games]
4. Number of Suppliers [DIRECT]
DIRECT
5. Expectations [about future price] [INVERSE]
6. Subsidies [DIRECT]
DIRECT
3 1
2
7. Taxes [INVERSE]

S S

P

S

Don’t confuse these
two with Chg in QS.

“Suppliers produce smaller/
smalle
larger quantities at each price.”

QS3 QS1 QS2
Supply for Students
1.Resource Cost [wages & raw materials] [Inverse]

Raw Materials

Wages
If resource cost

decreases
supply
Increases

[making more $]

S
P

If resource cost
S

S

increases
supply
Decreases

[making less $]
S2

S1

S3

P

Resource Cost [wages & raw materials] [inverse]
inverse
58. Increase in wages (increases/decreases) supply.
Ex: A decrease in the price of computer chips
(increases/decreases) the supply of computers.
I only have
200 acres

P2

“Substitutes in production”

Broccoli

Corn

S

S2

S1

P

P1
QS1 QS2

Producers want to produce more of the good where price is increasing,
P1

Corn

Broccoli S

S1
S2

P

P2
QS2 QS1

or at least, where the price is not going down.
S3

S1

S2

P

Alternative Output price changes [inverse]
inverse
57. If the price of corn decreases, the
supply of broccoli

(increases/decreases).
S1

S2

P
Supply of broccoli
“Can’t wait till
milking time.”

This lowers production costs & increases “S”.
Ex: Suppose a new milking machine called
“The Invisible Hand” has a very soothing
effect on cows; cows find the new machine
so “udderly” delightful that they produce
30% more milk. This technological advance
milk
will cause a shift to the right. 54
right
Technological Breakthrough – Cow Waterbeds

“500 gallons of blood have to circulate thru a cow’s
udder to produce nutrients for one gallon of milk.”

The cow floats on its own pocket of
water, as the water bed fits each
body. They are “cool in summer How many?
body
Waterbedsforcows.com
and warm in the winter”. They are
filled with 18 gallons of water and covered with thick rubber mats
– undulated when the 1,400 pound cows shifted their weight.
By conforming to the shape of the cows, the beds give the cows a more
comfortable rest. They reduce wear and tear on the cows’ joints & prevent
swelling and burning of hocks (ankles). The cows pressure points, the knees
and hocks (ankles) float on the surface preventing hair loss, skin abrasions,
and swollen hocks. Because the cow’s utter floats on top of the

waterbed and is not crushed against a solid bed surface, the cow’s
udder received better blood flow.
The cows appear to be lazy because they lie down for 6-8 hours a day to
digest food. However, there is a lot of work going on inside their bodies.
The cow’s udder extracts nutrients from blood to produce milk . 500
gallons of blood have to circulate thru a cow’s udder to produce
nutrients for one gallon of milk.” The cows wait for a shot at the water
beds. The first ones who come back from the milking parlor fill those
water bed stalls first. The other late-arriving cows say,

“Mooooooovvvvvveeeeee over, give me that water bed.”
S3

S1

S2

P
56. If more firms enter an industry, the supply
curve will shift to the (left/right).
• When the American Basketball League
began play in 1968, there was a (bigger/smaller)
supply of basketball games each week.
60. A new professional football league will
(increase/decrease) the supply of football games.
P

S2

S1
S3

$2.00

Supply decreased when the
number of suppliers was
reduced.
If the number of firms in
the market increases,
Supply will also increase.

QS2

QS1

QS3

Q
[“INVERSE”]
S2
Oil Prices

expected P
to decrease

S1

S2
Oil Prices

expected

to increase

59. If oil producers expect future oil prices

to decline, they will (increase/decrease)
decline
current production.

If oil producers expect future oil prices to

increase, they will (increase/decrease)
increase
current production.
S3

[Direct]
S1

S2

P

Free money from the government (subsidies)
subsidies
induces suppliers to supply more.
If subsidies are taken away, then suppliers are losing
money and will decrease supply.
S3

I’m losing
profits.”

[Inverse]
S1

S2

P

If business have their taxes decreased,
decreased
it moves the supply curve to the right.
55. If business have their taxes increased,
increased
it moves the supply curve to the (left/right).
Individual Supply Can Increase or
Decrease
Change in Supply [“RATNEST”]

Individual
Supply
P

Qs

$5

60

Increase in resource cost
Alt. output price increase
Technological decrease
P
Decrease in # of suppliers
6
Producer exp. of price increase
Decrease in subsidies
Increase in taxes
5

Price (per bushel)

“S” is a whole bunch of
QS’s strung together.

1.
2.
3.
4.
5.
6.
7.

S3

S1

S2

4
3

4

50

3

35

2

20

1

1

5

0

2

1. Decrease in resource cost
2. Alt. output price decrease
3. Technological change
Q
2
4 4. Increase in # of suppliers
6
8
10
12
14
Quantity5. Producer exp. of per week)
Supplied (bushels price decrease
6. Increase in subsidies
7. Decrease in taxes
Increase in Demand

[For clownfish after “Finding Nemo”]

S

D2

D1
P2

Shortage

P1

Q1

Q2
D1

P1

S

D2
Surplus

P2
Q2

Q1
S2

D
P2
P1

Shortage

Q2 Q1

S1
D

S1

1.35
$2.70

S2
P1

Surplus

P2
Q2 Q2
With Much Higher Gas Prices, What
Happens In The SUV/RV Market

D2

P1 QD

D1

8 MPG

Surplus

QS

P2
Q2

Q1

S1
D

P

D1

Q
D1

[TIMER]
A

“D” for flag
after 9/11

D1

D

P2
P1

P1

S

B

S

Q

P

D2

Slide Rule

After introduction
of calculator

P2
After “Looking

For Nemo”

Q2 Q1 “Decrease in Demand”

Q1 Q2

“Increase in Demand”

S

P

Q

Four Possibilities

[RATNEST] D

D

C
Increase in
supply of gas

S

S1
S1

$1.85

P
D

$1.85
$1.00

Q1 Q2

S2

S1

Decrease in
“S” of gas

$1.00
“Increase in Supply”

Q

Q2 Q1

“Decrease in Suppy”
Decrease in “QS”

Increase in “QS”

[caused by a “decrease in price”]

P1

S

P2

[caused by an “increase in price”]

1. Price change
2. Movement
3. Point to point
[“Snap

S

P2
P1

shot of 1 pt in time]

QS1 QS2

QS2 QS1

Change in “S” [RATNEST]

S1
S2
P
“Increase in S”

1. Non-price
2. Whole curve
3. Shift
[“Time passes”]

hat could cause an “increase in supply?”
Decrease in resource cost [wages/raw materials]
Decrease in the price of an alternative output for “X”
Producer expectations of a price decrease

P

S2 S1

“Decrease in S”
4. Increase in number of producers
5. Increase in technology
6. Increase in subsidies
7. Decrease in taxes
“Increase in D”

D1

S

D2

P2
P1

“Decrease in
D1
S
P1 D2

P2
QD1 QD2

(A)

QD2 QD1

TIMER

(B)

D”

“Increase in S”
D
S1
S2
P1
P2

“Decrease in S”
S2
D
S1
P2
P1

QD1 QD2

QD2 QD1

(C)

RATNEST (D)

A
___1. Decrease in income on market for used cars.
cars
B
___2. Decrease in income on market for new cars.
cars
B
___3. Consumer expectations about a price decrease.
decrease
C
___4. Producer expectations about a price decrease.
decrease
C
___5. Increase in # of producers on the market for computers.
computers
A
___6. Increase in # of consumers on the market for used cars.
cars
A
___7. Increase in # of consumers on the market for new cars.
cars
A
___8. Decrease in the price of iPods upon the market for iTune songs.
songs
C
___9. Decrease in business taxes on the market for computers.
computers
A
___10. Consumer expectations of a shortage of apples.
apples
C
___11. Decrease in resource cost on market for computers.
computers
D
___12. Increase in price of wheat upon market for corn.
corn
A
___13. Consumer expectations of a shortage of cell phones.
D
___14. Producers expectations about a price increase.
A
___15. Increase in income on the market for iPod videos.
videos
NS 41-53

41. Supply – quantities producers offer at each (technique/price).
42. The relationship between price and QS is (direct/inverse) and the
relationship between price and QD is (direct/inverse) or opposite.
43. The “law of supply” indicates that producers will offer (less/more) at higher prices.
44. In moving along a stable supply/demand curve, (income/price) is not held constant.
curve

45. (Inelasic/Elastic) supply-when QS is very responsive to price.
price
46. (Inelastic/Elastic) supply-when a change in price has little impact on QS.
QS
47. The 3-item test for elastic supply is: the item can be made quickly,
it tends to be cheap, & it can be produced by (skilled/unskilled) workers.
48. The 3-item test for inelastic supply is: the item cannot be made quickly,
it tends to be expensive, & (skilled/unskilled) workers.
49. An example of inelastic supply is (posters/computers/T-shirts).
50. An example of elastic supply is (HDTV/computers/T-shirts).
51. The supply curve for elastic supply is more (flat/vertical).
52. The supply curve for inelastic supply is more (flat/vertical).
53. A decrease in the price of cattle feed will cause the (D/S) curve for beef to shift.
Bushels
Demanded

26
32
37
43
48

Corn Price

$5
$4
$3
$2
$1

Bushels
Supplied

46
41
37
32
29

$5

D

S

$3
$2
26 32 37 43 46

61. Equilibrium price will be ($1/$2/$3/$4/$5).
62. If the price in this market were $2, farmers
$2
(would/would not) be able to sell all their corn.
63. If the price were initially $5, we would expect
$5
the price of corn supplied to (increase/decrease)
as a result of the price change.
64. A price of $36 will result in a (shortage/surplus) of (50/100).
65. Price & quantity will gravitate toward ($12 & 150/$24 & 100).
66. The highest price that buyers will be willing & able to pay
for 50 units is ($12/$24/$36).
67. A price of $12 in this market will result in a (surplus/shortage) of (50/100).

D

S

$36
$24

E

$12
0

50

100

150
NS 68-77

68. Increase in the price of irrigation equipment [resource cost] upon the market
cost
for wheat is illustrated by diagram (A/B/C/D).
69. Increase in incomes upon the market for spam is illustrated by diagram (A/B/C/D).
70. Subsidy for cancer research being taken away is illustrated by diagram (A/B/C/D).
71. Decrease in the price of M&Ms upon the market for Snickers is illustrated by (A/B/C/D).
72. Decrease in worker wages on the market for textiles is illustrated by (A/B/C/D).
73. Increase in the price of cameras upon the market for film is illustrated by (A/B/C/D).
74. A decrease in income, if “X” is an inferior good would (increase/decrease)
income
(demand/supply), (increase/decrease) price, and (increase/decrease) quantity.
75. A decrease in the number of consumers for product “X” will (increase/decrease)
(demand/supply), (increase/decrease) price, and (increase/decrease) quantity.
76. Producer expectations that the price of “X” will decrease sharply in the future
will (incr/decr) (demand/supply), (incr/decr) price, & (incr/decr) quantity.
77. A decrease in the price of a product which is a substitute to “X” will (incr/decr)
(supply/demand), (incr/decr) price, (incr/decr) quantity.
P2

D2 S2
D1
S1

D2

E2

D2
P2

S2

S2
E2

S2
E2
Q2

E2
Q2

D2

78. If demand increases and supply decreases, equilibrium price will
decreases
(incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).
79. If demand decreases and supply increases, equilibrium price will
increases
(incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).
80. If the supply and demand curves both increase, equilibrium price will
increase
(incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).
81. If demand and supply curves both decrease, equilibrium price will
decrease
(incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).

indeterminate, that is, the quantity could increase,
decrease, or stay the same, depending on the magnitude of the shifts.
*Staying the same means
Price Floor – minimum price [creates surpluses]
surpluses
Such as:
Minimum Wage P
Agricultural
Price Supports

S

D

Price Floor-minimum price

$2.50
The price has to be
IN the house. It can’t
be below the floor. 1.90

QS exceeds QD

Surplus

Price per gallon

Equilibrium price for milk
.

Some call agricultural price
supports “udder insanity.”

0

14

19

24

Millions of gallons per month

Q
Price Ceiling - maximum price [creates shortages]
shortages

Such as:

Rent controls in NYC

Wartime price controls
Rock concert prices
Super Bowl tickets

P

S

D

The price has to be
in the house. It can’t
be above the ceiling.
$2,000
NYC

1,200

Price Ceiling-maximum price

Rent Controls

Dolphins Stadium

Super Bowl Ticket Prices
E-Bay
1967 - $12.00

2007 - $6-700 $2,700-10,000
[end zone - mid-field]

QD exceeds QS

Shortage

2.5

3
7

3.5 Millions of Dwellings Rented

NFL could raise the price & make another $150 M but the average man couldn’t attend.
D

P

D1

Q
D1

[TIMER]
A

“D” for flag
after 9/11

D

D1

P2
P1

P1

S

B

S

Q

P

D2

Slide Rule

After introduction
of calculator

P2
After “Looking

For Nemo”

Q2 Q1 “Decrease in Demand”

Q1 Q2

“Increase in Demand”

S

P

Q

Four Possibilities

[RATNEST]

D

C
Increase in
supply of gas

S1
S1

$1.85

S

D

P
D

$1.85
$1.00

Q1 Q2

S2

S1

Decrease in
“S” of gas

$1.00
“Increase in Supply”

Q

Q2 Q1

“Decrease in Suppy”
Banana Supply & Demand
Price (per pound)

Crop Freezing
Damage…

P

D1

S2

S1

P2
P1

o

Q2

Q1

Quantity

Q
American Flags After 9-11
P D1

D2

S1

Price (per flag)

P2
P1

o
Q1
Q2
Q
Patriotism Surge after 9/11…
“TIMER”[D] or “RATNEST”[S]

A
__1. Increase in income on the market for camcorders.
camcorders
A
__2. Increase in # of consumers on market for computers.
D
__3. Producer expectations about a price increase.
__4. Consumer expectations about a price increase.
A
__5. Increase in # of producers on market for digital cameras.
C
__6. Increase in resource cost on the market for bagels.
D
___7. Increase in the price of Apple’s iPod Video on the
A
market for Microsoft’s Zune.
B
___8. Increase in the price of tea on the market for lemon.
___9. Increase in business taxes on the market for SUVs.
D
A
___10. Consumers expect a shortage of cell phones.
phones
Effect of Changes in “D” or “S” on Price and Quantity
E1

E2
E1
E2

E2

E1
E2

E1

1. An increase in income if Microsoft’s Zune is a normal good would:
a. increase D, increase P, & increase Q.
c. increase S, increase P, & increase Q.

b. increase D, increase P, & decrease Q.
d. decrease D, increase P, & increase Q.

2. A decrease in the price of resources used to produce laptops will:

a. increase S, increase P, & increase Q.
b. increase D, increase P, & increase Q.
c. decrease S, decrease P, & decrease Q.
d. do none of the above
3. Decrease in price of butter on the market for the substitute margarine:
margarine
a. increase D, increase P, & decrease Q.
b. decrease D, decrease P, & increase Q.
c. decrease D, increase P, & decrease Q.
d. do none of the above

4. An improvement in technology used to produce DVDs will:
a. decrease S, increase P, & decrease Q.
c. increase S, decrease P, & increase Q.

b. decrease S, increase P, & increase Q.
d. decrease D, decrease P, & decrease Q.

5. A decrease in the number of consumers for Fuzzy Wuzzies:
a. decrease S, decrease P, & decrease Q.
c. decrease D, decrease P, & decrease Q.

b. increase D, increase P, & increase Q.
d. decrease D, decrease P, & increase Q.
Effect of Changes in “D” or “S” on Price and Quantity

6. A decrease in taste for Fuzzy Wuzzies would:
a. increase D, increase P, & increase Q.
c. increase S, increase P, & increase Q.

b. decrease D, increase P, & decrease Q.
d. decrease D, decrease P, & decrease Q.

7. A reduction in the number of firms producing laptops:
a. increase S, increase P, & increase Q.
c. decrease S, increase P, & decrease Q.

b. increase D, increase P, & increase Q.
d. decrease S, decrease P, decrease Q.

8. An increase in the price of pancakes, a complement for syrup would:
a. increase D, increase P, & decrease Q.
c. decrease D, decrease P, & decrease Q.

b. decrease D, decrease P, & increase Q.
d. do none of the above

9. A decrease in income upon the market for spam would:
a. decrease S, increase P, & decrease Q.
c. increase D, decrease P, & increase Q.

b. decrease S, increase P, & increase Q.
d. increase D, increase P, & increase Q.

10. Consumer expectations that the price of PSP will increase by
50% in the future will:
a. decrease S, decrease P, & decrease Q.
c. decrease D, decrease P, & decrease Q.

b. increase D, increase P, & increase Q.
d. decrease D, decrease P, & increase Q.
[D – “TIMER”; QD – price change of product (inverse)]
C
___1. Which of the following will cause an "Increase in Demand" for computers?
a. decrease in price of computers

b. decrease in income

___2. Which of the following will cause an
A
a. decrease in price of computers

in
d. increase in price of computers
d. increase the price of compu ters

"Increase in QD" for computers?

b. decrease in income

C
___3. Which of the following will cause a

c. increase in income
in
c. increase income

d. increase in price of computers

"Decrease in Demand" for plasma TVs?

a. increase in price of plasma TVs

b. decrease in price of plasma TVs

a. increase in price of plasma TVs

b. decrease in price of plasma TVs

A
___4. Which of the following will cause a

c. decrease in # ofers(marketsize)
consumers
c. decrease in # of consum

"Decrease in QD" for plasma TVs?

c. decrease in # of consumers (market size)

[S – “RATNEST”; QS – price change of product (direct)]
C
___5. Which of the following will cause an "Increase in Supply" for DVDs?
a.
b.

decrease in price of DVDs
increase in price of DVDs

B
___6. Which of the following will cause an
a. decrease in price of DVDs
b. increase in price of DVDs

c. decrease in resource cost
d. expectations of price increase

"Increase in QS" for DVDs?

c. decrease in resource price
d. expectations of price increase

___7. Which of the following will cause a
D

"Decrease in Supply" for DVDs?

B
___8. Which of the following will cause a

"Decrease in QS" for digital cameras?

a. increase in price of DVDs
b. decrease in price of DVDs

a. increase in price of cameras
b. decrease in price of cameras

c. subsidies to suppliers of DVDs
d. expectations of price increase

c. subsidies to suppliers of cameras
d. expectations of digital camera price increase
“Increase in D”
D1 D2

S

P

P

(A)
B
___1.
C
___2.
B
___3.
C
___4.
D
___5.
D
___6.
B
___7.
C
___8.

“Decrease in
D1
S
D2

TIMER

(B)

D”

“Increase in S”
D
S1
S2

P

(C)

“Decrease in S”
S2
D
S1

P

RATNEST (D)

Increase in price of computers on market for software.
Decrease in auto worker wages on the market for autos.
autos
Decrease in the price Pepsi on the market for Coke.
Coke
Decrease in the price of computer chips on the computer market.
market
Increase in price of fertilizer on the market for wheat.
wheat
Decrease in government subsidies on market for AIDS research.
research
Increase in incomes on market for used clothing.
clothing
A new professional soccer league is formed
upon the market for soccer games.
games
D
___9. Producer expectations that the price of orange juice
will increase 30% in 3 weeks?
A
___10. Consumer expectations that the price of
orange juice will increase 30% in 3 weeks?
A
___11. Decrease in price of computers upon market for monitors?
monitors
“You da man”

Review for
Demand and Supply
The “Gangsta
Car”

Circular Flow
Product Market
Chrysler300

“Gangsta Car

1
2
Which flow represents?

2 A. Consumer expenditures?
1 B. Goods and services?
4 C. Land, labor, capital, and
Households

entrepreneurial ability?
3 D. Rent, wages, interest,
and profits?

3

Businesses

Chrysler Plant

Businesses

Labor for
“Gangsta Cars”

4

Resource Market
The Circular-Flow Diagram
Resource Market
1

Labor

2
Which Flow Represents?

A. 4
Goods/services?
B. 3
Consumer expenditures?
C. Land, labor, capital and
1
entrepreneurial ability?
D. 2
Rent, wages, interest,
B usinesses and profits?
Fuzzy Wuzzy
Businesses

3
4

Product Market

Households
Capital Goods

PPC

A
B
D

E

More or better resources or better technology

C

Consumption Goods

41. At what letter is there unemployment [recession]? D
42. What letters represent resources being used in their
most productive manner? [full employment,
full production, and best available technology] A, B, or C
43. What letter represents an improvement in technology,
technology
therefore a new PPC frontier line? E
44. The (straight line/curve) illustrates the “law of increasing cost”?
45. The (straight line/curve) illustrates the “law of constant cost.”
46. At what letter would there be the most economic growth in the
future if a country were producing there now? A
now
What is the opportunity cost when moving from “C” to “A”; Consumption
when moving from B to C; Capital
and do we have to give anything up when moving from D to B? no
D
iPod Touch [8 GB]

$299.00

Reasons For Downsloping “D” Curve
1. Income Effect –current buyers buy more.
2. Substitution Effect– new buyers now purchase.
Effect
3. Diminishing Marginal Utility - because buyers
of successive units receive less marginal utility,
they will buy more only when the price is lowered.

Change in QD
1. Price change
2. Movement

Price

QD

[up/down the demand curve]

3. Point to point [along the curve]

Inverse

relationship

“D” refers to the “whole 2
prices”
QD1 QD curve ”. [“all prices”]
“QD” refers to a “point on the curve”
based on a “particular price.”
“Let’s make more.”

- As price increases
…Q S also increases
-As price decreases
… QS also decreases
“Take it. We are losing money.”

S

P2
P1

QS1 QS2

S

P1
P2

QS2 QS1

Direct relationship between P & QS
Demand Shifters” [TIMER]

Taste [direct]
Income [normal-direct] [inferior-inverse]
Market Size [number of consumers-direct]
Expectations [of consumers about future *price-direct,
about future availability-inverse, or about future income–direct.
Related Good *Prices [substitutes-direct] [complements-inverse]

D3 D1 D3

D1 D2

P

Butter

D1
D2

P

P2

Complement
[inverse]

P

P1

D

QD1 QD2

Bread

Substitute
[Direct]

Bagels

Change in “D” [curve]

1. Non price change [“TIMER”]
2. Whole “D” curve shifts

QD3 QD1 QD2

[There is a change in “QD” but it is
not caused by a change in “price.”

[QD-”single price”; D-”all prices”]
price”
prices”
Supply for Students
Supply for Students
D1

D2

P
QD1 QD2
New Cars
D1
More income
results in
more demand
for new cars;
less demand
for used cars.

D2

Used Cars

P
QD1 QD2

Less income
results in
more demand
for used cars;
less demand
for new cars.
D1 D2

This is what we told 1 billion
Chinese, as new potential
consumers, when we opened
trade relations with them in
the 70s.

New Cars

P

More demand
for both new
and used cars

QD1 QD2

Used Cars
$399

If Steve Jobs responds to iRate customers who
bought the iPhone at $599 and says, “iSorry,
iSorry
we will raise the price back to $599 in 3 weeks.”

D1

D2

Buy it now to save money.

iPhone

P
QD1 QD2
Let’s say that we are coming out of recession & consumers
feel secure about their jobs. [Positive future income]

D1

D2

P
QD1 QD2
Let’s say that we are going into a recession and consumers
don’t feel secure about their jobs. [Negative future income]
income

D1
D2

P
QD2QD1
D1 D2

D

D1

P1

P

D2

P

P2

Complement
[Inverse]

Milk

QD1 QD2

Cereal

Substitute
[Direct]

Pop Tarts
Supply for Students
1.Resource Cost [wages & raw materials] [Inverse]

Raw Materials

Wages
If resource cost

decreases
supply
Increases

[making more $]

S
P

If resource cost
S

S

increases
supply
Decreases

[making less $]
I only have
200 acres

P2

“Substitutes in production”

Broccoli

Corn

S

S2

S1

P

P1
QS1 QS2

Producers want to produce more of the good where price is increasing,
P1

Corn

Broccoli S

S1
S2

P

P2
QS2 QS1

or at least, where the price is not going down.
Waterbedsforcows.com
We love these cow waterbeds because we get better
blood flow and can produce 30% more milk.

Because cows
produce more
milk, farmers
don’t have to
have as many P
cows.[saves $]

Less skin abrasions
so happier cows
produce more milk.

S

Supply curve
S moves “udderly”
to the right.

Mooooove over and give me that waterbed.
NFL
P

S1
S3

8 new teams

XFL

Because of the
XFL’s cheerleaders
many called this
league, not the
XFL, but the

XXXFL

in 2001

$50

QS

QS

Q

Supply of FB games each week
XFL [Extreme Football League]

Supply of FB games increased when the XFL was formed.
[“INVERSE”]
S2
Oil Prices

expected P
to decrease

S1

S2
Oil Prices

expected

to increase

If oil producers expect future oil prices to

decline, they will (increase/decrease)
decline
current production.

If oil producers expect future oil prices to

increase, they will (increase/decrease)
increase
current production.
S3

[Direct]
S1

S2

P

Free money from the government (subsidies)
subsidies
induces suppliers to supply more.
If subsidies are taken away, then suppliers are losing
money and will decrease supply.
S3

I’m losing
profits.”

[Inverse]
S1

S2

P

If business have their taxes decreased,
decreased
it moves the supply curve to the right.
If business have their taxes increased,
increased
it moves the supply curve to the left.
GRAPHING DEMAND
[“Change in QD”]

Price $5

Plot the Points

CORN

P QD
$5 10
4 20
3 35
2 55
1 80

4
3
2
1

o

10

20

30

40

50

60

Quantity of Corn

70

80

Q
If QS>QD; Price Decreases
If QS<QD; Price Increases
If QD=QS; Price Stays Same

Dollar
Price

$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
0

D

QD
QD

Price Floor
Surplus
E

QS
QS

70

QS

S

QS

120 =120

QD=QS

Price Ceiling QD
Shortage
QD

175

20 40 60 75 100 120 140 160 180 200 220
Quantity (units of any good or service)
D

P

D1

Q
D1

[TIMER]
A

“D” for flag
after 9/11

D1

D

P2
P1

P1

S

B

S

Q

P

D2

Slide Rule

After introduction
of calculator

P2
After “Looking

For Nemo”

Q2 Q1 “Decrease in Demand”

Q1 Q2

“Increase in Demand”

S

P

Q

Four Possibilities

[RATNEST] D

D

C
Increase in
supply of gas

S

S1
S1

$1.85

P
D

$1.85
$1.00

Q1 Q2

S2

S1

Decrease in
“S” of gas

$1.00
“Increase in Supply”

Q

Q2 Q1

“Decrease in Suppy”
“ Change in QD”
D
P1
P2

“ Change in QS”
S

P2

Price Change P1

QD1 QD2
[INVERSE]

P2
P1

Point to Point
Movement

P1

QS1 QS2
[DIRECT]

S

P2
QD2
D2

QD1

[What is not held
constant in these 4?]

QS2

QS1

“Change in Demand”

D1

D1

D2

Q1 Q2
S1

Non-Price Change
Whole Curve Shifts

S2

Q1 Q2

“Chg in Supply”

Q2 Q1

S2
S1

Q2 Q1
Price Changes for Substitutes &
D

Complements
D1
Subs - Direct
Coke

P1

P

P2

D
P1

D2

Dr Pepper

Complements - Inverse
D1

Motorcycles

P2

D2

P
Helmets

QD1 QD2

Alternative Outputs - Inverse
S1

S

P1
P2

P
QS2 QS1

Corn

S2
“Increase in D”
D1 D2
S

P

P

(A)
A
___1.
D
___2.
A
___3.
D
___4.
C
___5.
C
___6.
A
___7.
C
___8.

“Decrease in
D1
S
D2

TIMER

(B)

D”

“Increase in S”
D
S1
S2

P

“Decrease in S”
S2
D
S1

P

(C) RATNEST (D)

Decrease in the price of printers on the market for cartridges.
Increase in worker wages on the market for computers.
computers
Increase in the price Dr. Pepper on the market for Coke.
Coke
Increase in the price of computer chips on the computer market.
market
Decrease in price of fertilizer on the market for wheat.
wheat
Increase in government subsidies on the market for AIDS research.
research
Decrease in incomes on the market for used clothing.
clothing
New professional hockey league is formed
upon the market for hockey games.
games
C
___9. Producer expectations that the price of
orange juice will decrease 30% in 3 weeks?
B
___10. Consumer expectations that the price of
orange juice will decrease 30% in 3 weeks?
A
___11. Decrease in price of computers upon market for monitors?
monitors
Effect of Changes in “D” or “S” on Price and Quantity

1. A decrease in income if spam is an inferior good would:
a. increase D, increase P, & increase Q.
c. increase S, increase P, & increase Q.

b. increase D, increase P, & decrease Q.
d. decrease D, increase P, & increase Q.

2. An increase in the price of resources used to produce DVD
Players will:

a. increase S, increase P, & increase Q.
b. increase D, increase P, & increase Q.
c. decrease S, decrease P, & decrease Q.
d. decrease S, increase P, & decrease Q.
3. Decrease in price of butter on the market for the substitute margarine:
margarine
a. increase D, increase P, & decrease Q.
b. decrease D, decrease P, & increase Q.
c. decrease D, increase P, & decrease Q.
d. do none of the above

4. An improvement in technology used to produce DVDs will:
a. decrease S, increase P, & decrease Q.
c. increase S, decrease P, & increase Q.

b. decrease S, increase P, & increase Q.
d. decrease D, decrease P, & decrease Q.

5. An increase in the number of consumers for Fuzzy Wuzzies:
a. decrease S, decrease P, & decrease Q.
c. decrease D, decrease P, & decrease Q.

b. increase D, increase P, & increase Q.
d. decrease D, decrease P, & increase Q.
Effect of Changes in “D” or “S” on Price and Quantity

6. An increase in taste for Fuzzy Wuzzies would:
a. increase D, increase P, & increase Q.
c. increase S, increase P, & increase Q.

b. decrease D, increase P, & decrease Q.
d. decrease D, decrease P, & decrease Q.

7. A reduction in the number of firms producing laptops:
a. increase S, increase P, & increase Q.
c. decrease S, increase P, & decrease Q.

b. increase D, increase P, & increase Q.
d. decrease S, decrease P, decrease Q.

8. A decrease in the price of pancakes, a complement for syrup would:
pancakes
a. increase D, increase P, & decrease Q.
c. Increase D, increase P, & increase Q.

b. decrease D, decrease P, & increase Q.
d. do none of the above

9. An increase in income upon the market for used cars would:
a. decrease S, increase P, & decrease Q.
c. increase D, decrease P, & increase Q.

b. decrease S, increase P, & increase Q.
d. decrease D, decrease P, & decrease Q.

10. Consumer expectations that the price of Nintendo DS will
increase by 50% in the future will:
a. decrease S, decrease P, & decrease Q.
c. decrease D, decrease P, & decrease Q.

b. increase D, increase P, & increase Q.
d. decrease D, decrease P, & increase Q.
7

[D – “TIMER”; QD – price change of product (inverse)] Revised
B
___1. Which of the following will cause a “Decrease in Demand" for Seven jeans?
a. decrease in price of Seven jeans

b. decrease in income

D Which of the following will
___2.

cause a

c. increase in income

in the price of of Sevens
d. increase in price compu ters

“Decrease in QD" for Seven jeans?

a. decrease in price of Seven jeans b. decrease in income

in
c. increaseincome

C
___3. Which of the following will cause an “Increase

in Demand" for Seven jeans?

a. increase in price of Seven jeans

b. decrease in price of Seven jeans

a. increase in price of Seven jeans

b. decrease in price of Seven jeans

B
___4. Which of the following will cause an

d. increase in price of Sevens

consumers
c.c. increase # of consum
decrease in in # of ers(marketsize)

“Increase in QD“ for Seven jeans?

c. decrease in # of consumers( marketsize)

[S – “RATNEST”; QS – price change of product (direct)]
D
___5. Which of the following will cause a “Decrease in Supply" for the Zune?
a.
b.

decrease in price of the Zune
increase in price of the Zune

A
___6. Which of the following will cause a
a. decrease in price of the Zune
b. increase in price of the Zune

c. decrease in resource cost
d. expectations of price increase for the Zune

“Decrease in QS" for the Zune?

c. decrease in resource price of the Zune
d. expectations of price increase for the Zune

C
___7. Which of the following will cause an Increase
“
a. increase in price of the Zune
b. decrease in price of the Zune

in Supply" for the Zune?

c. subsidies to suppliers of the Zune
d. expectations of price increase for the Zune

A
___8. Which of the following will cause an “Increase
a. increase in price of the Zune
b. decrease in price of the Zune

in QS" for the Zune?

c. subsidies to suppliers of the Zune
d. expectations of a Zune price increase
Practice “Supply Quiz”
Which would cause a “decrease in supply” for MP3 Players?

a. decrease in the price of MP3s b. increase in the price of MP3s
. decrease in MP3 resource cost d. producer expectations of a price increase

Which would cause a “decrease in QS” for MP3s?

. decrease in the price of MP3s b. increase in the price of MP3s
. decrease in MP3 resource cost d. producer expectations of a price increase

Which would cause an “increase in supply” for MP3 Players?

. decrease in the price of MP3 Players b. increase in the price of MP3s
. decrease in MP3 resource cost
d. producer expectations of a price increase

Which would cause an “increase in QS” for MP3s?

. decrease in price of MP3s b. increase in price of MP3s
. decrease in MP3 resource cost d. producer expectations of a price increase

An increase in the price of asparagus will (increase/decrease)
the supply of the alternative output peas.
A 50% decrease in the price of “computer chips” will
(increase/decrease) the (supply/QS) for “computers”.
Which would cause an “increase in supply” for MP3 Players?

. increase in wages for MP3 Player workers.
. subsidies($100 per computer) are given to MP3 Player companies.
. subsidies for MP3 Player makers being taken away.
Supply for Students

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Supply for Students

  • 2. Will We Have C hange in Boings QD [ inverse] or C hange [direct] in QS [caused by a “change in price ”] or a Swoosh “Change in D ” caused by “TIMER ” “C hange in S” caused by “RATNEST ”
  • 3. Increase in “QD” [caused by a “decrease in price”] D Decrease in “QD” [caused by an “increase in price”] D 1. Price change 2. Movement 3. Point to point P1 P2 [“Snap shot of 1 pt in time] P2 P1 QD2 QD1 QD1 QD2 D1 D2 P Change in “D” [“TIMER”] 1. Non-price 2. Whole curve 3. Shift D1 P D2 [“Time passes”] “Decrease in D” “Increase in D” hat could cause an “increase in Demand?” 5. Expectations of a shortage ncrease in taste 6. Expectations of a price increase ncrease in income [normal good] 7. Expectations of positive future income good Decrease in income [inferior good] 8. Incr in price of a substitute for product “X” good ncrease in market size [# of consumers] 9. Decr in price of a complement of product “X” consumers
  • 4. Decrease in “QS” Increase in “QS” [caused by a “decrease in price”] P1 S P2 [caused by an “increase in price”] 1. Price change 2. Movement 3. Point to point [“Snap S P2 P1 shot of 1 pt in time] QS1 QS2 QS2 QS1 Change in “S” [RATNEST] S1 S2 P “Increase in S” 1. Non-price 2. Whole curve 3. Shift [“Time passes”] hat could cause an “increase in supply?” Decrease in resource cost [wages/raw materials] Decrease in the price of an alternative output for “X” Producer expectations of a price decrease P S2 S1 “Decrease in S” 4. Increase in number of producers 5. Increase in technology 6. Increase in subsidies 7. Decrease in taxes
  • 5. Deriving Market Supply from Individual Firm Supply Curves Firm A’s Supply $3 S Firm B’s Supply S $3 10,000 30,000 QS1 QS2 Soybeans [bushels] S $3 $2 $2 $2 Firm C’s Supply 10,000 25,000 QS1 QS2 5,000 10,000 QS1 QS2 Soybeans [bushels] Soybeans [bushels] Direct – both variables move in same direction. S $3 “Particular Price” $2 25,000 QS1 65,000 QS2 Soybeans [bushels]
  • 6. Price increases; QS increases increases Price decreases; QS decreases decreases . Direct “S” refers to the “whole supply curve” and refers to what producers will supply at “different prices”. “QS” refers to a “point on the curve” and refers to what producers will supply at a “particular price”. S P2 P1 Producers want the highest price possible. Change in “QS” 1. Price change 2. Movement (up/down “S” curve) 3. Point to point (along “S” curve) QS1 QS2 Reasons For Upsloping “S” Curve 1. There is increasing opportunity cost if you don’t produce. 2. Current producers produce more [overtime/more shifts] 3. New producers are attracted to the market.
  • 7. S P $5 $2 Existing suppliers of DVD Rentals are willing to supply more as the price increases & others [Albertson’s] are attracted to the market. 10,000 65,000
  • 8. If QS>QD; Price Decreases If QS<QD; Price Increases If QD=QS; Price Stays Same Dollar Price $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 0 D QD QD Price Floor Surplus E QS S QS 120 =120 QD=QS QS QS 70 Price Ceiling QD Shortage QD 175 20 40 60 75 100 120 140 160 180 200 220 Quantity (units of any good or service)
  • 9. $5 D S $4 $3 $2 $1 0 1 2 4 6 7 8 9 10 11 12 14 16 Quantity Supplied and Demanded (Thousands)
  • 10. Aggieland Football Season Tickets $90 Why do the Ags have a scoreboard on the outside of the stadium?
  • 11. The Aggies have a scoreboard outside so that the 5 Reveilles who are buried outside the stadium can see the scoreboard. The Aggie War Hymn Hullabaloo, Caneck, Caneck Hullabaloo, Caneck, Caneck Good bye to texas university The 5 mascots are ranked as 5-Star generals and are buried facing the scoreboard. scoreboard The Plaque says this: “Reveille 1st, and the other Reveilles They are the boys who show the real old fight that follow her, will always have a ‘the eyes of Texas are upon you’ special place in an Aggie’s heart and That is the song they sing so well symbolize the undying spirit of Texas A&M.” A&M So long to the orange and the white Good luck to dear old Texas Aggies Sounds Like hell So good bye to texas university We’re gonna beat you all to Chigaroogarem Chigaroogarem Rough, Tough, Real stuff, Texas A&M
  • 12. Supply (& Demand) “Bread & Butter” of Economics [“perfectly competitive markets”] Direct – price and QS move in the same direction. (increase together or decrease together) S The Law of Supply says QS varies directly with price. P2 The Law Of Demand says QD varies inversely with price. P1 QS1 QS2
  • 13. Supply & Demand [Bread & Butter of Econ] [assuming “perfectly competitive markets”] [No individual can control price.] “I want a clean diaper.” The law of supply and demand is learned in infancy. Infants demand clean diapers and are willing to supply peace and quiet in exchange. Mothers demand peace and quiet exchange and are willing to supply clean diapers in exchange. The terms of trade are arranged. exchange “One scream equals one diaper. The price of one diaper is one scream.” Supply – producers “willingness to sell.” Or, the “amount of products offered at each price during a specific time period.”
  • 14. Supply (and Demand) Bread “Bread & Butter” of Economics [“perfectly competitive markets”] Butter Law of Supply – QS varies directly with price. price Suppliers offer more for sale at higher prices than at lower prices. The consumers, being consumers on the paying end, tend to buy a small amount of the product, but will buy more if the price is lowered. The supplier, on the lowered supplier receiving end, considers price as an incentive to sell a product. The higher the price, the more incentive he has.
  • 15. “Let’s make more.” - As price increases …Q S also increases -As price decreases … QS also decreases “Take it. We are losing money.” S P2 P1 QS1 QS2 S P1 P2 QS2 QS1 Direct relationship between P & QS
  • 16. 45. Elastic Supply – a small increase/decrease in price 45 causes significant change in QS. Elastic supply is very responsive to price changes. astic (Flexible) Supply Can be made quickly Little expense (few capital resources required) (47) Unskilled workers Long time Don’t need scarce natural resources xamples: (50) T-shirts, hats, T-shirts hot glasses, and posters Inelastic (Inflexible) Supply 1. Cannot be made quickly 2. Great Expense (large capital resources required) 3. (48) Skilled workers 4. Short time 5. Scarcity of natural resources Examples: Gold, diamonds, and (49) computers
  • 17. 46. Inelastic Supply - regardless of price, producers are unwilling/unable to increase/decrease QS. (QS is inflexible and unresponsive to price changes) 51. Elastic supply 51 results in a more horizontal line & 52. inelastic 52 supply results in a more vertical line. Elastic supply is very responsive to price & inelastic supply is unresponsive to price. 0 1000 2000 3000 400 5000
  • 18. I only Change in “Supply” [Curve] 1. have “Non-price change” [RATNEST] 2002. Whole supply curve “shifts” . [There was a QS change but it was not caused by a change in price] acres P2 Corn Broccoli S P1 P S2 S1 Alternative Output Price Change [INVERSE] “Substitutes in production” S1 S2 P QS1 QS2 “Supply Shifters” [RATNEST] 1. Resource Cost [wages /raw materials ] [INVERSE] 2. Alternative Output Prices [INVERSE] 3. Technology [DIRECT] DIRECT [new football league- bigger “S” of games] 4. Number of Suppliers [DIRECT] DIRECT 5. Expectations [about future price] [INVERSE] 6. Subsidies [DIRECT] DIRECT 3 1 2 7. Taxes [INVERSE] S S P S Don’t confuse these two with Chg in QS. “Suppliers produce smaller/ smalle larger quantities at each price.” QS3 QS1 QS2
  • 20. 1.Resource Cost [wages & raw materials] [Inverse] Raw Materials Wages If resource cost decreases supply Increases [making more $] S P If resource cost S S increases supply Decreases [making less $]
  • 21. S2 S1 S3 P Resource Cost [wages & raw materials] [inverse] inverse 58. Increase in wages (increases/decreases) supply. Ex: A decrease in the price of computer chips (increases/decreases) the supply of computers.
  • 22. I only have 200 acres P2 “Substitutes in production” Broccoli Corn S S2 S1 P P1 QS1 QS2 Producers want to produce more of the good where price is increasing, P1 Corn Broccoli S S1 S2 P P2 QS2 QS1 or at least, where the price is not going down.
  • 23. S3 S1 S2 P Alternative Output price changes [inverse] inverse 57. If the price of corn decreases, the supply of broccoli (increases/decreases). S1 S2 P Supply of broccoli
  • 24. “Can’t wait till milking time.” This lowers production costs & increases “S”. Ex: Suppose a new milking machine called “The Invisible Hand” has a very soothing effect on cows; cows find the new machine so “udderly” delightful that they produce 30% more milk. This technological advance milk will cause a shift to the right. 54 right
  • 25. Technological Breakthrough – Cow Waterbeds “500 gallons of blood have to circulate thru a cow’s udder to produce nutrients for one gallon of milk.” The cow floats on its own pocket of water, as the water bed fits each body. They are “cool in summer How many? body Waterbedsforcows.com and warm in the winter”. They are filled with 18 gallons of water and covered with thick rubber mats – undulated when the 1,400 pound cows shifted their weight. By conforming to the shape of the cows, the beds give the cows a more comfortable rest. They reduce wear and tear on the cows’ joints & prevent swelling and burning of hocks (ankles). The cows pressure points, the knees and hocks (ankles) float on the surface preventing hair loss, skin abrasions, and swollen hocks. Because the cow’s utter floats on top of the waterbed and is not crushed against a solid bed surface, the cow’s udder received better blood flow. The cows appear to be lazy because they lie down for 6-8 hours a day to digest food. However, there is a lot of work going on inside their bodies. The cow’s udder extracts nutrients from blood to produce milk . 500 gallons of blood have to circulate thru a cow’s udder to produce nutrients for one gallon of milk.” The cows wait for a shot at the water beds. The first ones who come back from the milking parlor fill those water bed stalls first. The other late-arriving cows say, “Mooooooovvvvvveeeeee over, give me that water bed.”
  • 26. S3 S1 S2 P 56. If more firms enter an industry, the supply curve will shift to the (left/right). • When the American Basketball League began play in 1968, there was a (bigger/smaller) supply of basketball games each week. 60. A new professional football league will (increase/decrease) the supply of football games.
  • 27. P S2 S1 S3 $2.00 Supply decreased when the number of suppliers was reduced. If the number of firms in the market increases, Supply will also increase. QS2 QS1 QS3 Q
  • 28. [“INVERSE”] S2 Oil Prices expected P to decrease S1 S2 Oil Prices expected to increase 59. If oil producers expect future oil prices to decline, they will (increase/decrease) decline current production. If oil producers expect future oil prices to increase, they will (increase/decrease) increase current production.
  • 29. S3 [Direct] S1 S2 P Free money from the government (subsidies) subsidies induces suppliers to supply more. If subsidies are taken away, then suppliers are losing money and will decrease supply.
  • 30. S3 I’m losing profits.” [Inverse] S1 S2 P If business have their taxes decreased, decreased it moves the supply curve to the right. 55. If business have their taxes increased, increased it moves the supply curve to the (left/right).
  • 31. Individual Supply Can Increase or Decrease Change in Supply [“RATNEST”] Individual Supply P Qs $5 60 Increase in resource cost Alt. output price increase Technological decrease P Decrease in # of suppliers 6 Producer exp. of price increase Decrease in subsidies Increase in taxes 5 Price (per bushel) “S” is a whole bunch of QS’s strung together. 1. 2. 3. 4. 5. 6. 7. S3 S1 S2 4 3 4 50 3 35 2 20 1 1 5 0 2 1. Decrease in resource cost 2. Alt. output price decrease 3. Technological change Q 2 4 4. Increase in # of suppliers 6 8 10 12 14 Quantity5. Producer exp. of per week) Supplied (bushels price decrease 6. Increase in subsidies 7. Decrease in taxes
  • 32. Increase in Demand [For clownfish after “Finding Nemo”] S D2 D1 P2 Shortage P1 Q1 Q2
  • 36. With Much Higher Gas Prices, What Happens In The SUV/RV Market D2 P1 QD D1 8 MPG Surplus QS P2 Q2 Q1 S1
  • 37. D P D1 Q D1 [TIMER] A “D” for flag after 9/11 D1 D P2 P1 P1 S B S Q P D2 Slide Rule After introduction of calculator P2 After “Looking For Nemo” Q2 Q1 “Decrease in Demand” Q1 Q2 “Increase in Demand” S P Q Four Possibilities [RATNEST] D D C Increase in supply of gas S S1 S1 $1.85 P D $1.85 $1.00 Q1 Q2 S2 S1 Decrease in “S” of gas $1.00 “Increase in Supply” Q Q2 Q1 “Decrease in Suppy”
  • 38. Decrease in “QS” Increase in “QS” [caused by a “decrease in price”] P1 S P2 [caused by an “increase in price”] 1. Price change 2. Movement 3. Point to point [“Snap S P2 P1 shot of 1 pt in time] QS1 QS2 QS2 QS1 Change in “S” [RATNEST] S1 S2 P “Increase in S” 1. Non-price 2. Whole curve 3. Shift [“Time passes”] hat could cause an “increase in supply?” Decrease in resource cost [wages/raw materials] Decrease in the price of an alternative output for “X” Producer expectations of a price decrease P S2 S1 “Decrease in S” 4. Increase in number of producers 5. Increase in technology 6. Increase in subsidies 7. Decrease in taxes
  • 39. “Increase in D” D1 S D2 P2 P1 “Decrease in D1 S P1 D2 P2 QD1 QD2 (A) QD2 QD1 TIMER (B) D” “Increase in S” D S1 S2 P1 P2 “Decrease in S” S2 D S1 P2 P1 QD1 QD2 QD2 QD1 (C) RATNEST (D) A ___1. Decrease in income on market for used cars. cars B ___2. Decrease in income on market for new cars. cars B ___3. Consumer expectations about a price decrease. decrease C ___4. Producer expectations about a price decrease. decrease C ___5. Increase in # of producers on the market for computers. computers A ___6. Increase in # of consumers on the market for used cars. cars A ___7. Increase in # of consumers on the market for new cars. cars A ___8. Decrease in the price of iPods upon the market for iTune songs. songs C ___9. Decrease in business taxes on the market for computers. computers A ___10. Consumer expectations of a shortage of apples. apples C ___11. Decrease in resource cost on market for computers. computers D ___12. Increase in price of wheat upon market for corn. corn A ___13. Consumer expectations of a shortage of cell phones. D ___14. Producers expectations about a price increase. A ___15. Increase in income on the market for iPod videos. videos
  • 40. NS 41-53 41. Supply – quantities producers offer at each (technique/price). 42. The relationship between price and QS is (direct/inverse) and the relationship between price and QD is (direct/inverse) or opposite. 43. The “law of supply” indicates that producers will offer (less/more) at higher prices. 44. In moving along a stable supply/demand curve, (income/price) is not held constant. curve 45. (Inelasic/Elastic) supply-when QS is very responsive to price. price 46. (Inelastic/Elastic) supply-when a change in price has little impact on QS. QS 47. The 3-item test for elastic supply is: the item can be made quickly, it tends to be cheap, & it can be produced by (skilled/unskilled) workers. 48. The 3-item test for inelastic supply is: the item cannot be made quickly, it tends to be expensive, & (skilled/unskilled) workers. 49. An example of inelastic supply is (posters/computers/T-shirts). 50. An example of elastic supply is (HDTV/computers/T-shirts). 51. The supply curve for elastic supply is more (flat/vertical). 52. The supply curve for inelastic supply is more (flat/vertical). 53. A decrease in the price of cattle feed will cause the (D/S) curve for beef to shift.
  • 41. Bushels Demanded 26 32 37 43 48 Corn Price $5 $4 $3 $2 $1 Bushels Supplied 46 41 37 32 29 $5 D S $3 $2 26 32 37 43 46 61. Equilibrium price will be ($1/$2/$3/$4/$5). 62. If the price in this market were $2, farmers $2 (would/would not) be able to sell all their corn. 63. If the price were initially $5, we would expect $5 the price of corn supplied to (increase/decrease) as a result of the price change.
  • 42. 64. A price of $36 will result in a (shortage/surplus) of (50/100). 65. Price & quantity will gravitate toward ($12 & 150/$24 & 100). 66. The highest price that buyers will be willing & able to pay for 50 units is ($12/$24/$36). 67. A price of $12 in this market will result in a (surplus/shortage) of (50/100). D S $36 $24 E $12 0 50 100 150
  • 43. NS 68-77 68. Increase in the price of irrigation equipment [resource cost] upon the market cost for wheat is illustrated by diagram (A/B/C/D). 69. Increase in incomes upon the market for spam is illustrated by diagram (A/B/C/D). 70. Subsidy for cancer research being taken away is illustrated by diagram (A/B/C/D). 71. Decrease in the price of M&Ms upon the market for Snickers is illustrated by (A/B/C/D). 72. Decrease in worker wages on the market for textiles is illustrated by (A/B/C/D). 73. Increase in the price of cameras upon the market for film is illustrated by (A/B/C/D). 74. A decrease in income, if “X” is an inferior good would (increase/decrease) income (demand/supply), (increase/decrease) price, and (increase/decrease) quantity. 75. A decrease in the number of consumers for product “X” will (increase/decrease) (demand/supply), (increase/decrease) price, and (increase/decrease) quantity. 76. Producer expectations that the price of “X” will decrease sharply in the future will (incr/decr) (demand/supply), (incr/decr) price, & (incr/decr) quantity. 77. A decrease in the price of a product which is a substitute to “X” will (incr/decr) (supply/demand), (incr/decr) price, (incr/decr) quantity.
  • 44. P2 D2 S2 D1 S1 D2 E2 D2 P2 S2 S2 E2 S2 E2 Q2 E2 Q2 D2 78. If demand increases and supply decreases, equilibrium price will decreases (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). 79. If demand decreases and supply increases, equilibrium price will increases (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). 80. If the supply and demand curves both increase, equilibrium price will increase (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). 81. If demand and supply curves both decrease, equilibrium price will decrease (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). indeterminate, that is, the quantity could increase, decrease, or stay the same, depending on the magnitude of the shifts. *Staying the same means
  • 45. Price Floor – minimum price [creates surpluses] surpluses Such as: Minimum Wage P Agricultural Price Supports S D Price Floor-minimum price $2.50 The price has to be IN the house. It can’t be below the floor. 1.90 QS exceeds QD Surplus Price per gallon Equilibrium price for milk . Some call agricultural price supports “udder insanity.” 0 14 19 24 Millions of gallons per month Q
  • 46. Price Ceiling - maximum price [creates shortages] shortages Such as: Rent controls in NYC Wartime price controls Rock concert prices Super Bowl tickets P S D The price has to be in the house. It can’t be above the ceiling. $2,000 NYC 1,200 Price Ceiling-maximum price Rent Controls Dolphins Stadium Super Bowl Ticket Prices E-Bay 1967 - $12.00 2007 - $6-700 $2,700-10,000 [end zone - mid-field] QD exceeds QS Shortage 2.5 3 7 3.5 Millions of Dwellings Rented NFL could raise the price & make another $150 M but the average man couldn’t attend.
  • 47. D P D1 Q D1 [TIMER] A “D” for flag after 9/11 D D1 P2 P1 P1 S B S Q P D2 Slide Rule After introduction of calculator P2 After “Looking For Nemo” Q2 Q1 “Decrease in Demand” Q1 Q2 “Increase in Demand” S P Q Four Possibilities [RATNEST] D C Increase in supply of gas S1 S1 $1.85 S D P D $1.85 $1.00 Q1 Q2 S2 S1 Decrease in “S” of gas $1.00 “Increase in Supply” Q Q2 Q1 “Decrease in Suppy”
  • 48. Banana Supply & Demand Price (per pound) Crop Freezing Damage… P D1 S2 S1 P2 P1 o Q2 Q1 Quantity Q
  • 49. American Flags After 9-11 P D1 D2 S1 Price (per flag) P2 P1 o Q1 Q2 Q Patriotism Surge after 9/11…
  • 50. “TIMER”[D] or “RATNEST”[S] A __1. Increase in income on the market for camcorders. camcorders A __2. Increase in # of consumers on market for computers. D __3. Producer expectations about a price increase. __4. Consumer expectations about a price increase. A __5. Increase in # of producers on market for digital cameras. C __6. Increase in resource cost on the market for bagels. D ___7. Increase in the price of Apple’s iPod Video on the A market for Microsoft’s Zune. B ___8. Increase in the price of tea on the market for lemon. ___9. Increase in business taxes on the market for SUVs. D A ___10. Consumers expect a shortage of cell phones. phones
  • 51. Effect of Changes in “D” or “S” on Price and Quantity E1 E2 E1 E2 E2 E1 E2 E1 1. An increase in income if Microsoft’s Zune is a normal good would: a. increase D, increase P, & increase Q. c. increase S, increase P, & increase Q. b. increase D, increase P, & decrease Q. d. decrease D, increase P, & increase Q. 2. A decrease in the price of resources used to produce laptops will: a. increase S, increase P, & increase Q. b. increase D, increase P, & increase Q. c. decrease S, decrease P, & decrease Q. d. do none of the above 3. Decrease in price of butter on the market for the substitute margarine: margarine a. increase D, increase P, & decrease Q. b. decrease D, decrease P, & increase Q. c. decrease D, increase P, & decrease Q. d. do none of the above 4. An improvement in technology used to produce DVDs will: a. decrease S, increase P, & decrease Q. c. increase S, decrease P, & increase Q. b. decrease S, increase P, & increase Q. d. decrease D, decrease P, & decrease Q. 5. A decrease in the number of consumers for Fuzzy Wuzzies: a. decrease S, decrease P, & decrease Q. c. decrease D, decrease P, & decrease Q. b. increase D, increase P, & increase Q. d. decrease D, decrease P, & increase Q.
  • 52. Effect of Changes in “D” or “S” on Price and Quantity 6. A decrease in taste for Fuzzy Wuzzies would: a. increase D, increase P, & increase Q. c. increase S, increase P, & increase Q. b. decrease D, increase P, & decrease Q. d. decrease D, decrease P, & decrease Q. 7. A reduction in the number of firms producing laptops: a. increase S, increase P, & increase Q. c. decrease S, increase P, & decrease Q. b. increase D, increase P, & increase Q. d. decrease S, decrease P, decrease Q. 8. An increase in the price of pancakes, a complement for syrup would: a. increase D, increase P, & decrease Q. c. decrease D, decrease P, & decrease Q. b. decrease D, decrease P, & increase Q. d. do none of the above 9. A decrease in income upon the market for spam would: a. decrease S, increase P, & decrease Q. c. increase D, decrease P, & increase Q. b. decrease S, increase P, & increase Q. d. increase D, increase P, & increase Q. 10. Consumer expectations that the price of PSP will increase by 50% in the future will: a. decrease S, decrease P, & decrease Q. c. decrease D, decrease P, & decrease Q. b. increase D, increase P, & increase Q. d. decrease D, decrease P, & increase Q.
  • 53. [D – “TIMER”; QD – price change of product (inverse)] C ___1. Which of the following will cause an "Increase in Demand" for computers? a. decrease in price of computers b. decrease in income ___2. Which of the following will cause an A a. decrease in price of computers in d. increase in price of computers d. increase the price of compu ters "Increase in QD" for computers? b. decrease in income C ___3. Which of the following will cause a c. increase in income in c. increase income d. increase in price of computers "Decrease in Demand" for plasma TVs? a. increase in price of plasma TVs b. decrease in price of plasma TVs a. increase in price of plasma TVs b. decrease in price of plasma TVs A ___4. Which of the following will cause a c. decrease in # ofers(marketsize) consumers c. decrease in # of consum "Decrease in QD" for plasma TVs? c. decrease in # of consumers (market size) [S – “RATNEST”; QS – price change of product (direct)] C ___5. Which of the following will cause an "Increase in Supply" for DVDs? a. b. decrease in price of DVDs increase in price of DVDs B ___6. Which of the following will cause an a. decrease in price of DVDs b. increase in price of DVDs c. decrease in resource cost d. expectations of price increase "Increase in QS" for DVDs? c. decrease in resource price d. expectations of price increase ___7. Which of the following will cause a D "Decrease in Supply" for DVDs? B ___8. Which of the following will cause a "Decrease in QS" for digital cameras? a. increase in price of DVDs b. decrease in price of DVDs a. increase in price of cameras b. decrease in price of cameras c. subsidies to suppliers of DVDs d. expectations of price increase c. subsidies to suppliers of cameras d. expectations of digital camera price increase
  • 54. “Increase in D” D1 D2 S P P (A) B ___1. C ___2. B ___3. C ___4. D ___5. D ___6. B ___7. C ___8. “Decrease in D1 S D2 TIMER (B) D” “Increase in S” D S1 S2 P (C) “Decrease in S” S2 D S1 P RATNEST (D) Increase in price of computers on market for software. Decrease in auto worker wages on the market for autos. autos Decrease in the price Pepsi on the market for Coke. Coke Decrease in the price of computer chips on the computer market. market Increase in price of fertilizer on the market for wheat. wheat Decrease in government subsidies on market for AIDS research. research Increase in incomes on market for used clothing. clothing A new professional soccer league is formed upon the market for soccer games. games D ___9. Producer expectations that the price of orange juice will increase 30% in 3 weeks? A ___10. Consumer expectations that the price of orange juice will increase 30% in 3 weeks? A ___11. Decrease in price of computers upon market for monitors? monitors
  • 55. “You da man” Review for Demand and Supply
  • 56. The “Gangsta Car” Circular Flow Product Market Chrysler300 “Gangsta Car 1 2 Which flow represents? 2 A. Consumer expenditures? 1 B. Goods and services? 4 C. Land, labor, capital, and Households entrepreneurial ability? 3 D. Rent, wages, interest, and profits? 3 Businesses Chrysler Plant Businesses Labor for “Gangsta Cars” 4 Resource Market
  • 57. The Circular-Flow Diagram Resource Market 1 Labor 2 Which Flow Represents? A. 4 Goods/services? B. 3 Consumer expenditures? C. Land, labor, capital and 1 entrepreneurial ability? D. 2 Rent, wages, interest, B usinesses and profits? Fuzzy Wuzzy Businesses 3 4 Product Market Households
  • 58. Capital Goods PPC A B D E More or better resources or better technology C Consumption Goods 41. At what letter is there unemployment [recession]? D 42. What letters represent resources being used in their most productive manner? [full employment, full production, and best available technology] A, B, or C 43. What letter represents an improvement in technology, technology therefore a new PPC frontier line? E 44. The (straight line/curve) illustrates the “law of increasing cost”? 45. The (straight line/curve) illustrates the “law of constant cost.” 46. At what letter would there be the most economic growth in the future if a country were producing there now? A now What is the opportunity cost when moving from “C” to “A”; Consumption when moving from B to C; Capital and do we have to give anything up when moving from D to B? no
  • 59. D iPod Touch [8 GB] $299.00 Reasons For Downsloping “D” Curve 1. Income Effect –current buyers buy more. 2. Substitution Effect– new buyers now purchase. Effect 3. Diminishing Marginal Utility - because buyers of successive units receive less marginal utility, they will buy more only when the price is lowered. Change in QD 1. Price change 2. Movement Price QD [up/down the demand curve] 3. Point to point [along the curve] Inverse relationship “D” refers to the “whole 2 prices” QD1 QD curve ”. [“all prices”] “QD” refers to a “point on the curve” based on a “particular price.”
  • 60. “Let’s make more.” - As price increases …Q S also increases -As price decreases … QS also decreases “Take it. We are losing money.” S P2 P1 QS1 QS2 S P1 P2 QS2 QS1 Direct relationship between P & QS
  • 61. Demand Shifters” [TIMER] Taste [direct] Income [normal-direct] [inferior-inverse] Market Size [number of consumers-direct] Expectations [of consumers about future *price-direct, about future availability-inverse, or about future income–direct. Related Good *Prices [substitutes-direct] [complements-inverse] D3 D1 D3 D1 D2 P Butter D1 D2 P P2 Complement [inverse] P P1 D QD1 QD2 Bread Substitute [Direct] Bagels Change in “D” [curve] 1. Non price change [“TIMER”] 2. Whole “D” curve shifts QD3 QD1 QD2 [There is a change in “QD” but it is not caused by a change in “price.” [QD-”single price”; D-”all prices”] price” prices”
  • 65. New Cars D1 More income results in more demand for new cars; less demand for used cars. D2 Used Cars P QD1 QD2 Less income results in more demand for used cars; less demand for new cars.
  • 66. D1 D2 This is what we told 1 billion Chinese, as new potential consumers, when we opened trade relations with them in the 70s. New Cars P More demand for both new and used cars QD1 QD2 Used Cars
  • 67. $399 If Steve Jobs responds to iRate customers who bought the iPhone at $599 and says, “iSorry, iSorry we will raise the price back to $599 in 3 weeks.” D1 D2 Buy it now to save money. iPhone P QD1 QD2
  • 68. Let’s say that we are coming out of recession & consumers feel secure about their jobs. [Positive future income] D1 D2 P QD1 QD2
  • 69. Let’s say that we are going into a recession and consumers don’t feel secure about their jobs. [Negative future income] income D1 D2 P QD2QD1
  • 72. 1.Resource Cost [wages & raw materials] [Inverse] Raw Materials Wages If resource cost decreases supply Increases [making more $] S P If resource cost S S increases supply Decreases [making less $]
  • 73. I only have 200 acres P2 “Substitutes in production” Broccoli Corn S S2 S1 P P1 QS1 QS2 Producers want to produce more of the good where price is increasing, P1 Corn Broccoli S S1 S2 P P2 QS2 QS1 or at least, where the price is not going down.
  • 74. Waterbedsforcows.com We love these cow waterbeds because we get better blood flow and can produce 30% more milk. Because cows produce more milk, farmers don’t have to have as many P cows.[saves $] Less skin abrasions so happier cows produce more milk. S Supply curve S moves “udderly” to the right. Mooooove over and give me that waterbed.
  • 75. NFL P S1 S3 8 new teams XFL Because of the XFL’s cheerleaders many called this league, not the XFL, but the XXXFL in 2001 $50 QS QS Q Supply of FB games each week XFL [Extreme Football League] Supply of FB games increased when the XFL was formed.
  • 76. [“INVERSE”] S2 Oil Prices expected P to decrease S1 S2 Oil Prices expected to increase If oil producers expect future oil prices to decline, they will (increase/decrease) decline current production. If oil producers expect future oil prices to increase, they will (increase/decrease) increase current production.
  • 77. S3 [Direct] S1 S2 P Free money from the government (subsidies) subsidies induces suppliers to supply more. If subsidies are taken away, then suppliers are losing money and will decrease supply.
  • 78. S3 I’m losing profits.” [Inverse] S1 S2 P If business have their taxes decreased, decreased it moves the supply curve to the right. If business have their taxes increased, increased it moves the supply curve to the left.
  • 79. GRAPHING DEMAND [“Change in QD”] Price $5 Plot the Points CORN P QD $5 10 4 20 3 35 2 55 1 80 4 3 2 1 o 10 20 30 40 50 60 Quantity of Corn 70 80 Q
  • 80. If QS>QD; Price Decreases If QS<QD; Price Increases If QD=QS; Price Stays Same Dollar Price $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 0 D QD QD Price Floor Surplus E QS QS 70 QS S QS 120 =120 QD=QS Price Ceiling QD Shortage QD 175 20 40 60 75 100 120 140 160 180 200 220 Quantity (units of any good or service)
  • 81. D P D1 Q D1 [TIMER] A “D” for flag after 9/11 D1 D P2 P1 P1 S B S Q P D2 Slide Rule After introduction of calculator P2 After “Looking For Nemo” Q2 Q1 “Decrease in Demand” Q1 Q2 “Increase in Demand” S P Q Four Possibilities [RATNEST] D D C Increase in supply of gas S S1 S1 $1.85 P D $1.85 $1.00 Q1 Q2 S2 S1 Decrease in “S” of gas $1.00 “Increase in Supply” Q Q2 Q1 “Decrease in Suppy”
  • 82. “ Change in QD” D P1 P2 “ Change in QS” S P2 Price Change P1 QD1 QD2 [INVERSE] P2 P1 Point to Point Movement P1 QS1 QS2 [DIRECT] S P2 QD2 D2 QD1 [What is not held constant in these 4?] QS2 QS1 “Change in Demand” D1 D1 D2 Q1 Q2 S1 Non-Price Change Whole Curve Shifts S2 Q1 Q2 “Chg in Supply” Q2 Q1 S2 S1 Q2 Q1
  • 83. Price Changes for Substitutes & D Complements D1 Subs - Direct Coke P1 P P2 D P1 D2 Dr Pepper Complements - Inverse D1 Motorcycles P2 D2 P Helmets QD1 QD2 Alternative Outputs - Inverse S1 S P1 P2 P QS2 QS1 Corn S2
  • 84. “Increase in D” D1 D2 S P P (A) A ___1. D ___2. A ___3. D ___4. C ___5. C ___6. A ___7. C ___8. “Decrease in D1 S D2 TIMER (B) D” “Increase in S” D S1 S2 P “Decrease in S” S2 D S1 P (C) RATNEST (D) Decrease in the price of printers on the market for cartridges. Increase in worker wages on the market for computers. computers Increase in the price Dr. Pepper on the market for Coke. Coke Increase in the price of computer chips on the computer market. market Decrease in price of fertilizer on the market for wheat. wheat Increase in government subsidies on the market for AIDS research. research Decrease in incomes on the market for used clothing. clothing New professional hockey league is formed upon the market for hockey games. games C ___9. Producer expectations that the price of orange juice will decrease 30% in 3 weeks? B ___10. Consumer expectations that the price of orange juice will decrease 30% in 3 weeks? A ___11. Decrease in price of computers upon market for monitors? monitors
  • 85. Effect of Changes in “D” or “S” on Price and Quantity 1. A decrease in income if spam is an inferior good would: a. increase D, increase P, & increase Q. c. increase S, increase P, & increase Q. b. increase D, increase P, & decrease Q. d. decrease D, increase P, & increase Q. 2. An increase in the price of resources used to produce DVD Players will: a. increase S, increase P, & increase Q. b. increase D, increase P, & increase Q. c. decrease S, decrease P, & decrease Q. d. decrease S, increase P, & decrease Q. 3. Decrease in price of butter on the market for the substitute margarine: margarine a. increase D, increase P, & decrease Q. b. decrease D, decrease P, & increase Q. c. decrease D, increase P, & decrease Q. d. do none of the above 4. An improvement in technology used to produce DVDs will: a. decrease S, increase P, & decrease Q. c. increase S, decrease P, & increase Q. b. decrease S, increase P, & increase Q. d. decrease D, decrease P, & decrease Q. 5. An increase in the number of consumers for Fuzzy Wuzzies: a. decrease S, decrease P, & decrease Q. c. decrease D, decrease P, & decrease Q. b. increase D, increase P, & increase Q. d. decrease D, decrease P, & increase Q.
  • 86. Effect of Changes in “D” or “S” on Price and Quantity 6. An increase in taste for Fuzzy Wuzzies would: a. increase D, increase P, & increase Q. c. increase S, increase P, & increase Q. b. decrease D, increase P, & decrease Q. d. decrease D, decrease P, & decrease Q. 7. A reduction in the number of firms producing laptops: a. increase S, increase P, & increase Q. c. decrease S, increase P, & decrease Q. b. increase D, increase P, & increase Q. d. decrease S, decrease P, decrease Q. 8. A decrease in the price of pancakes, a complement for syrup would: pancakes a. increase D, increase P, & decrease Q. c. Increase D, increase P, & increase Q. b. decrease D, decrease P, & increase Q. d. do none of the above 9. An increase in income upon the market for used cars would: a. decrease S, increase P, & decrease Q. c. increase D, decrease P, & increase Q. b. decrease S, increase P, & increase Q. d. decrease D, decrease P, & decrease Q. 10. Consumer expectations that the price of Nintendo DS will increase by 50% in the future will: a. decrease S, decrease P, & decrease Q. c. decrease D, decrease P, & decrease Q. b. increase D, increase P, & increase Q. d. decrease D, decrease P, & increase Q.
  • 87. 7 [D – “TIMER”; QD – price change of product (inverse)] Revised B ___1. Which of the following will cause a “Decrease in Demand" for Seven jeans? a. decrease in price of Seven jeans b. decrease in income D Which of the following will ___2. cause a c. increase in income in the price of of Sevens d. increase in price compu ters “Decrease in QD" for Seven jeans? a. decrease in price of Seven jeans b. decrease in income in c. increaseincome C ___3. Which of the following will cause an “Increase in Demand" for Seven jeans? a. increase in price of Seven jeans b. decrease in price of Seven jeans a. increase in price of Seven jeans b. decrease in price of Seven jeans B ___4. Which of the following will cause an d. increase in price of Sevens consumers c.c. increase # of consum decrease in in # of ers(marketsize) “Increase in QD“ for Seven jeans? c. decrease in # of consumers( marketsize) [S – “RATNEST”; QS – price change of product (direct)] D ___5. Which of the following will cause a “Decrease in Supply" for the Zune? a. b. decrease in price of the Zune increase in price of the Zune A ___6. Which of the following will cause a a. decrease in price of the Zune b. increase in price of the Zune c. decrease in resource cost d. expectations of price increase for the Zune “Decrease in QS" for the Zune? c. decrease in resource price of the Zune d. expectations of price increase for the Zune C ___7. Which of the following will cause an Increase “ a. increase in price of the Zune b. decrease in price of the Zune in Supply" for the Zune? c. subsidies to suppliers of the Zune d. expectations of price increase for the Zune A ___8. Which of the following will cause an “Increase a. increase in price of the Zune b. decrease in price of the Zune in QS" for the Zune? c. subsidies to suppliers of the Zune d. expectations of a Zune price increase
  • 88. Practice “Supply Quiz” Which would cause a “decrease in supply” for MP3 Players? a. decrease in the price of MP3s b. increase in the price of MP3s . decrease in MP3 resource cost d. producer expectations of a price increase Which would cause a “decrease in QS” for MP3s? . decrease in the price of MP3s b. increase in the price of MP3s . decrease in MP3 resource cost d. producer expectations of a price increase Which would cause an “increase in supply” for MP3 Players? . decrease in the price of MP3 Players b. increase in the price of MP3s . decrease in MP3 resource cost d. producer expectations of a price increase Which would cause an “increase in QS” for MP3s? . decrease in price of MP3s b. increase in price of MP3s . decrease in MP3 resource cost d. producer expectations of a price increase An increase in the price of asparagus will (increase/decrease) the supply of the alternative output peas. A 50% decrease in the price of “computer chips” will (increase/decrease) the (supply/QS) for “computers”. Which would cause an “increase in supply” for MP3 Players? . increase in wages for MP3 Player workers. . subsidies($100 per computer) are given to MP3 Player companies. . subsidies for MP3 Player makers being taken away.