26/08/15
Lesson 3: Demand cont. and Supply
Learning Objective: I can define the law of supply.
DA: Price of other products is a non-price determinant of demand. Give an example and illustrate.
Review SL/HL paper 1 rubric and practice.
DA: Price of other products is a non-price determinant of demand. Give an example and illustrate.
Review SL/HL paper 1 rubric and practice.
Question: Using an example, distinguish between a movement along a demand curve and a shift of the demand curve.
Supply: Willingness and ability of producers to produce a quantity of a good or service at a given price in a given time period.
Law of Supply: As the price of a product rises, the quantity supplied of the product will usually increase. |
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As prices increase there's more potential profits to be made so the producer will increase output.
The non-price determinants of supply: There are a number of factors that determine supply and lead to an actual shift of the supply curve to either the right or the left.
1. The cost of factors of production.
2. The price of other products, which the producer could produce instead of the existing product.
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Increase in the cost of a factor of production. Which one?
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3. The state of technology.
- Improvements in the state of technology in a firm/industry should lead to an increase in supply, thus a shift of the supply curve to the right.
- In what case would the state of technology regress? Resulting in the supply curve to shift left.
- Future expectations of an increase or decrease in demand.
- Indirect taxes-Taxes on goods and services, i.e., alcohol and cigarettes. Vertical shift.
- Subsidies-Payments made to firms to reduce their costs. Downward shift.
Distinction between a movement along a supply curve and shift.
- Price
- Non-price determinants