The Free Enterprise System - Supply

Objectives:

• Explain the law of supply

• Understand how supply and demand affect price

• Explain how government is involved in the U.S. economy

I. Law of Supply

A. Supply - the amount of goods producers are willing to make and sell

B. Assumption - at a higher price, producers will offer more products for sale

C. Assumption - at a lower price, producers will offer fewer products for sale

D. Supply curve - upward sloping curve representing how much of a certain product a producer will supply at various prices

1. supply schedule - used to prepare the supply curve

2. draw a supply curve example:

# of units

Pric

e

II. Supply and Demand Together

Equilibrium Point - when the supply curve and the demand curve are put together, the place where they intersect is called equilibrium;

draw an example

and label the equilibrium point, the supply curve and the demand curve

# of units

Pric

e

DemandSupply

Equilibrium point

1. this point corresponds to the price that both the producer and customer are satisfied with

2. at this point, no shortage or surplus exists

3. equilibrium will stay consistent until something happens in the economy or otherwise to adjust the supply curve or the demand curve

a. i.e.: causes of a demand change -

b. i.e.: causes of a supply change -

B. Surplus - supply exceeds demand at a given price

1. suppliers may lower prices to encourage buying

C. Shortage - demand exceeds supply at a given price

1. suppliers raise prices and can still sell the goods and services

III. Roles of Government

A. “Modified” Free Enterprise System – i.e.: United States because of the government intervention in the lives of citizens and business

1. provider of services - military, police, education, road construction, libraries, etc.

2. enforcer of rules and regulations - a. prevent the formation of monopoliesb. protect workers and consumers

1. Equal Employment Opportunity Commission2. OSHA – stands for:

Occupational Safety & Health Administration 3. grants licenses for certain careers

- hairdressers, lawyers, psychologists4. health inspector - restaurants

c. protects the environment

EPA – stands for:

Environmental Protection Agency

-zoning

d. monitors our banking system and controls the money supply

- sets minimum wage