Current Events (split between today and tomorrow due to length "harsh realities"):
The Ch. 3 Sec. 2 Quiz Make-Up is today:
The Make-Up for the Chapter 3 Section 1 Quiz is today.
The Chapter 2 Make-Up Test is today.
The Ch. 2 Sec. 3 American Free Enterprise Make-Up Quiz is today.
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Law of Supply
In-class assignment: in your own words, define demand. What is the Law of supply? How does demand relate to supply? Graph out a sample Law of supply.
Supply curve video
In-class assignment: define supply curve. In your own words, describe a supply curve.
Draw a supply curve graph by following the video.
Use the market for cars as your example.
Who needs to be willing and able?
What do suppliers want?
What do consumers want?
What happens when cars are more expensive?
What happens when there is a change in price?
What happens to demand?
market supply curve
In-class assignment: in your own words, define market supply (long run supply curve).
Long Run Supply Curve
Economic growth means the economy’s potential output is rising. Because the long-run aggregate supply curve is a vertical line at the economy’s potential, we can depict the process of economic growth as one in which the long-run aggregate supply curve shifts to the right.
Because economic growth is the process through which the economy’s potential output is increased, we can depict it as a series of rightward shifts in the long-run aggregate supply curve. Notice that with exponential growth, each successive shift in LRAS is larger and larger.
As illustrated in this graph, “Economic Growth and the Long-Run Aggregate Supply Curve” illustrates the process of economic growth. If the economy begins at potential output of Y1, growth increases this potential. The figure shows a succession of increases in potential to Y2, then Y3, and Y4. If the economy is growing at a particular percentage rate, and if the levels shown represent successive years, then the size of the increases will become larger and larger, as indicated in the figure.
Because economic growth can be considered as a process in which the long-run aggregate supply curve shifts to the right, and because output tends to remain close to this curve, it is important to gain a deeper understanding of what determines long-run aggregate supply (LRAS).
The Aggregate Production Function
An aggregate production function relates the total output of an economy to the total amount of labor employed in the economy, all other determinants of production (capital, natural resources, and technology) being unchanged. relates the total output of an economy to the total amount of labor employed in the economy, all other determinants of production (that is, capital, natural resources, and technology) being unchanged. An economy operating on its aggregate production function is producing its potential level of output.
*The aggregate production function relates the level of employment to the level of real GDP produced per period.
*The real wage and the natural level of employment are determined by the intersection of the demand and supply curves for labor. Potential output is given by the point on the aggregate production function corresponding to the natural level of employment. This output level is the same as that shown by the long-run aggregate supply curve.
*Economic growth can be shown as a series of shifts to the right in LRAS. Such shifts require either upward shifts in the production function or increases in demand for or supply of labor.
“Increase in the Supply of Labor and the Long-Run Aggregate Supply Curve”
In-class assignment: Try It! With a partner, you will try your hand.
Suppose that the quantity of labor supplied is 50 million workers when the real wage is $20,000 per year and that potential output is $2,000 billion per year. Draw a three-panel graph similar to the one presented above in, “Increase in the Supply of Labor and the Long-Run Aggregate Supply Curve” to show the economy’s long-run equilibrium. Panel (a) of your graph should show the demand and supply curves for labor, Panel (b) should show the aggregate production function, and Panel (c) should show the long-run aggregate supply curve. Now suppose a technological change increases the economy’s output with the same quantity of labor as before to $2,200 billion, and the real wage rises to $21,500. In response, the quantity of labor supplied increases to 51 million workers. In the same three panels you have already drawn, sketch the new curves that result from this change. Explain what happens to the level of employment, the level of potential output, and the long-run aggregate supply curve. (Hint: you have information for only one point on each of the curves you draw—two for the supply of labor; simply draw curves of the appropriate shape. Do not worry about getting the scale correct.)
Answer to Try It! Problem
The production function in Panel (b) shifts up to PF2. Because it reflects greater productivity of labor, firms will increase their demand for labor, and the demand curve for labor shifts to D2 in Panel (a). LRAS1 shifts to LRAS2 in Panel (c). Employment and potential output rise. Potential output will be greater than $2,200 billion.
change in quantity supplied
change in supply
Changes in Supply, 4:39
In-class assignment, working with a partner, answer the following questions:
What do we mean by changes in supply?
Why do changes in supply occur?
What happens when supply decreases?
How do market forces effect supply after supply decreases?
What happens when supply increases?
How do market forces effect supply after supply increases?
What determines supply?
Gas Prices, Gas Gouging, Peak Oil, Elasticity, Supply Demand, 1:17
Gasoline gas prices are based on oil prices. Oil prices are determined by the oil supply and oil demand. Right now, both oil supply and oil demand are almost inelastic. As gasoline gas and oil prices go up, the demand stays almost the same. As the oil supply reaches peak oil or maximum production or extraction, the demand curve becomes vertical, or inelastic. The inelasticity of the oil supply and oil demand set things up for price volatility of both oil and gasoline. The seasonal changes in gas and oil prices we've seen in the last three years is probably due to reaching peak oil. This short screencast shows an inelastic oil supply curve, as well as an inelastic oil demand curve, and what happens to prices as the oil supply or oil demand change.
Chapter 3 Prep
Chapter 3: Business Organizations
CANNED HEAT - CHRISTMAS BOOGIE, 4:23
Email (or hand in hard copy) to email@example.com.
1. p. 112, #23-25.