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About this unit

This unit begins the study of product markets: the markets for the goods and services produced. In this unit, you will begins the study of product markets, focusing on the supply and demand model. Students will be introduced to the determinants of demand and supply, market equilibrium, and how changes in equilibrium occur when supply and demand change. Then, build on the supply and demand model to deepen your economics toolkit with the concepts of elasticity, consumer and producer surplus, and the impact of government policies.

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Supply and Demand | AP®︎/College Microeconomics | Economics | Khan Academy

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This unit begins the study of product markets: the markets for the goods and services produced. In this unit, you will begins the study of product markets, focusing on the supply and demand model. Students will be introduced to the determinants of demand and supply, market equilibrium, and how changes in equilibrium occur when supply and demand change.

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Define (using graphs as appropriate) the law of supply.

Explain (using graphs as appropriate) the relationship between price and quantity supplied.

Explain (using graphs as appropriate) producers’ (sellers’) responses to changes in incentives and technology.

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Individuals and firms respond to incentives and face constraints.

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A change in own-price causes a change in quantity supplied in the same direction and a movement along a supply curve.

The market supply curve (schedule) is derived from the summation of individual supply curves (schedules). The market supply curve is upward-sloping.

Changes in the determinants of supply can cause the supply curve to shift.

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Yes, a historical quirk. Demand and supply graphs and functions were used by both Cournot (1838) and then Marshall in his famous principles text (1890). Cournot thought of price as the independent variable and put price on the horizontal axis as per convention. Marshall in contrast thought of quantity as the independent variable and put quantity on the horizontal axis. Each had the "correct" diagram for the story they told. Economists overall, however, settled on Cournot's price story but kept Marshall's graph! Thus, the supply-demand graph visual and story don't look quite right to an engineer or physicist.

As we discuss more in the equilibrium video it is in fact legitimate to think of either price or quantity as the independent variable. In fact, both perspectives are useful because this is a simultaneous equation system so both stories are going on at the same time.

Now for the most important point. Can you safely skip this stuff? Absolutely not! Supply and demand are critical. Keep in mind that the independent variable on horizontal axis is just a convention. The convention in economics may be slightly odd to someone used to a different convention but that is all it is, different conventions or language and it is key that you learn the language of economics even if it seems a bit odd at first.

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The Supply Curve | Microeconomics Videos

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The supply curve shows how much of a good suppliers are willing and able to supply at different prices. Using oil prices as an example, learn how oil suppliers respond to prices based on the profit they stand to make.

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If the change is from nontradable quotas to tradable quotas, then the supply curve shifts to the right.
The principle is to ask how does _a change_ affect the overall production cost of an industry. If it increases the cost, then the supply curve shifts left. It it decreases the cost, the supply curve shifts right.
Now let's take fishing and evaluate the overall production cost before the change, and after the change.
In our case the change is the policy that quotas are now tradable.
Imagine that you and I are the only fishermen in a fishermen community. The supply curve shows what quantity we are, together, as an industry, able to supply at any given price. The total quota is, say, 20, with the restriction that we fish 10 pounds each. I have the right to fish 10 pounds but sometimes I get sick and I am only able to fish 9. I can't reach my quota. But neither can I sell the right to catch that pound to you, who are healthy and could easily work an extra hour. So together we supply 19. After the change, namely after we can trade, I can sell you my right to fish until you reach the total quota. We constantly produce 20 now. The change has removed a restriction within the fishing industry which decreased the costs of production. Therefore, the curve shifts to the right.
The same argument for a polluting industry, say, steel. After the change, it will be less costly for the inductry as a whole to produce steel. The quantity of steel produced, and of course, the quantity of pollution that come with it, will increase.
If however you mean that _the change_ is from a regime of no quotas and no restrictions at all to a regime of tradable quotas, then the supply curve shifts to the left.

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The Supply Curve Shifts | Microeconomics Videos

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If the change is from nontradable quotas to tradable quotas, then the supply curve shifts to the right. The principle is to ask how does _a change_ affect the overall production cost of an industry. If it increases the cost, then the supply curve shifts left.

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1. What is supply?

2. Why is supply upward sloping?

3. What is the difference between a change in quantity supplied and a change in supply?

4. What are the non-price determinants of supply?

5. How would the supply curve for mechanical pencils be affected by an increase in their price?

6. You make and sell hats. The price of material used to make the hats increases. How will this affect your supply of hats?

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A shift in the SC, referred to as a change in supply, occurs only if a non-price determinant of supply changes. For example, if the price of an ingredient used to produce the good, a related good, were to increase, then the SC would shift left. The following factors affect Supply and changes in these determinants will shift the SC.

1. Input Prices

If the price of raw materials used in the production of a product goes down, then S will increase, i.e. shift to the right. If the price of inputs increase then S will decrease, shift to the left.

2. Improvements in technology

If there are any major advancements in technology, then the cost of production will decrease and S shifts to the right. For example, USB flash drives began with a storage capacity of 8 mb and were fairly expensive, but now with steady improvements you can buy flash drives with hundreds of Gb of capacity at a lower price.

3. Government Policy

Government policies can have a significant impact on supply. For example: If the government imposes a subsidy on the good, then S increases while a tax on the good will have the opposite effect of decreasing S.

4. Size of the market

If the size of the market increases, then there will likely be an increase in the number of firms in the market. This usually tends to increase S.

5. Time

Over time, firms are able to increase capacity and are able to increase S.

6. Expectations

The concern about future market conditions can directly affect S. If the seller believes that the demand for his product will sharply increase in the foreseeable future then the firm owner may immediately increase production in anticipation of future price increases. This would shift the SC outwards, i.e. increase supply.

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The Law of Supply | Intelligent Economist

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A shift in the SC, referred to as a change in supply, occurs only if a non-price determinant of supply changes. For example, if the price of an ingredient used to produce the good, a related good, were to increase, then the SC would shift left.

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APMic Unit 2 Lesson 2 - Supply and Supply Determinants (Curve Shifters) Flashcards | Quizlet

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Start studying APMic Unit 2 Lesson 2 - Supply and Supply Determinants (Curve Shifters). Learn vocabulary, terms, and more with flashcards, games, and other study tools.

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Demand and Supply Explained Part 2 - Macro Topic 1.5 (Micro Topic 2.2)