AP Economics Mr. Bernstein Module 6: Supply and Demand – Supply and Equilibrium October 7, 2014
Dec 22, 2015
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AP EconomicsMr. Bernstein
Competitive Markets• An institution which brings together buyers and
sellers of particular goods or services• Local, national or international• Face-to-face, electronic or other impersonal• Assumption: no buyer or seller so large they affect
pricing• Will look at markets which are not perfectly
competitive later in the course
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AP EconomicsMr. Bernstein
Law of Supply• All other things equal, as price increases the
quantity supplied rises• So there is an direct relationship between price
and quantity supplied• Plotted on a graph, the law of demand infers an
upward sloping supply curve
• Note: It will be important to distinguish between a change in the “quantity supplied” and a change in “supply”
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AP EconomicsMr. Bernstein
Supply Shifters• Factors which change supply other than price• An increase in supply shifts the supply curve to the
right• A decrease in supply shifts the
supply curve to the left• Notice an increase in supply
shifts the supply curve horizontally, not vertically
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AP EconomicsMr. Bernstein
Supply Shifters• Input or Resource prices• Increase in the price of inputs causes a decrease in the
quantity supplied
• Prices of related goods• Increase in the price of Substitute Goods’ price causes a
decrease in the quantity supplied (production shifts to higher price substitute product)
• Technology• Advances in technology increases the quantity supplied
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AP EconomicsMr. Bernstein
Supply Shifters, cont.• Expectations• Expectations of future price increases decreases the
quantity supplied today
• Number of producers• More producers increase the quantity supplied
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Supply Shifters: T - RICE• Technology
• Related prices (substitutes, compliments)
• Input prices
• Competition (number of producers)
• Expectations
AP EconomicsMr. Bernstein
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AP EconomicsMr. Bernstein
Equilibrium• Equilibrium is the point where no buyers or sellers
would be better off changing price or quantity• AKA “Market-clearing” price• Market prices are like a pendulum, swinging back
and forth. At equilibrium, they are stable