7.2 The Law Of Supply

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7.2 The Law Of Supply

  1. 1. OBJECTIVE: ANALYZE THE EFFECT THE LAW OF SUPPLY HAS ON THE MARKET PLACE The Law of Supply
  2. 2. The Law of Supply <ul><li>When people are willing to buy at a high price the producer will make more items. </li></ul><ul><li>The Law also says the lower the price people are willing to pay, the fewer items the producer will be willing to make. </li></ul>
  3. 3. Supply Curve <ul><li>Incentive of Greater Profits-The higher the price of a good the greater the incentive is for a producer to produce more </li></ul><ul><li>Each point on a supply curve signifies that a producer will supply a certain quantity at each price </li></ul>
  4. 4. Determinants of Supply <ul><li>Price of Inputs- price of raw materials and wages </li></ul><ul><li>Number of firms in the Industry- number of businesses competing for your business </li></ul><ul><li>Taxes- more taxes means the cost of production goes up </li></ul><ul><li>Technology- improvement in technology means producing goods cheaper </li></ul>
  5. 5. Law of Diminishing Returns <ul><li>Adding units of one factor of production (Labor) to other factors of production (equipment) after some point output or efficiency will actually decrease </li></ul>
  6. 6. Putting Supply and Demand Together <ul><li>Equilibrium Price- The price at which the amount supplied by producers is equal to the amount consumers are willing to buy </li></ul>
  7. 7. Other Economic Terms <ul><li>Shortage- When consumers buy more than producers are willing to make </li></ul><ul><li>Surplus- When producers supply more than consumers will buy </li></ul><ul><li>Price Ceilings- A legal maximum price that may be charged for a good or service </li></ul><ul><li>Price Floor- A legal minimum price that may be charged for a good or service </li></ul>
  8. 8. Review <ul><li>What is a Marketplace? </li></ul><ul><li>Ans. freely chosen actions between buyers and sellers of goods and services </li></ul><ul><li>What is the Law of Demand? </li></ul><ul><li>Ans. The law of demand says as the price of an item goes up people will buy less. </li></ul><ul><li>The Law also says as the price of an item comes down people will buy more </li></ul>
  9. 9. Review <ul><li>What is Credit? </li></ul><ul><li>Ans. is receiving funds today for items; you will repay the money in the future </li></ul><ul><li>Who is Adam Smith? </li></ul><ul><li>Ans. wrote a book called “Wealth of Nations </li></ul><ul><li>Self Interest is also called what? </li></ul><ul><li>The invisible hand </li></ul><ul><li>What does Laissez-faire mean? </li></ul><ul><li>Ans. Hands off </li></ul>

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