Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education,New York, N.Y. 351
Introduction and Description
Lesson 2 introduced demand. This lesson
introduces supply, the other half of the market sys-
tem.A supply schedule represents the quantities
that firms are willing and able to supply at alterna-
tive prices. A supply curve is a graphical represen-
tation of the supply schedule. Understanding a
market is essential to success in AP Economics.
Activity 5 has the students graph a supply
schedule and helps them understand the implica-
tions of a shift in the supply curve. The activity then
focuses on the factors that shift the supply curve.
Activity 6 reinforces the factors that cause a supply
curve to shift, the direction of the shift and whether
the shift represents an increase or decrease in supply.
Objectives
1. Define supply schedule and supply curve.
2. Construct a supply curve using hypothetical
data.
3. Explain why producers are willing to supply more
of a good or service when the price increases.
4. Explain the difference between a shift in the
supply curve and a movement along the supply
curve.
5. Explain the difference between an increase in
supply and an increase in the quantity supplied.
6. Describe and analyze the forces that shift the
supply curve.
7. Explain why a supply curve would shift to the
right or left given specific changes in the economy.
Time Required
Two class periods or 90 minutes
Materials
1. Activities 5 and 6
2. Visual 1.7 and Visual 1.8
Procedure
1. Begin with a discussion of supply. Ask the stu-
dents what factors they think determine how
much a firm will produce. Be sure to emphasize
that supply is not inventory or stock, but the
amount producers are willing and able to bring
to market at alternative prices.
2. Use Visual 1.7 and note that as the price
decreases, the quantity supplied decreases.
3. Use Visual 1.8. Show that an increase in supply
is a shift to the right (and a decrease in supply is
a shift to the left), and discuss the factors that
will shift the supply curve.
4. Have the students start Activity 5 in class and
complete it for homework.
5. Review the answers to Activity 5.
6. Review the factors that shift the supply curve.
7. Have the students complete Activity 6 in class.
8. Review the answers to Activity 6 with the
students.
1
Macroeconomics
LESSON 3
UNIT
Supply
352 Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.
1
Macroeconomics
LESSON 3 ■ ACTIVITY 5
Answer
Key
UNIT
Supply Curves, Movements Along Supply Curves and
Shifts in Supply Curves
In this activity and those that follow, we will assume that the long-run supply curve of Greebes is typ-
ically upward sloping.
Part A
Study the data in Figure 5.1 and plot the supply of Greebes on the axes in Figure 5.2. Label the supply
curve S and answer the questions that follow. Write the correct answer on the answer blank, or under-
line the correct answer in parentheses.
1. The data for supply curve S indicate that at a price of $0.25 per Greebe, suppliers would be willing
to offer 200
million Greebes. Other things constant, if the price of Greebes increased to
$0.30 per Greebe, suppliers would be willing to offer 250
million Greebes. Such a
change would be an increase in (supply / quant
ity supplied).
Figure 5.1
Supply of Greebes
Price Quantity Supplied
($ per Greebe) (millions of Greebes)
$.15 100
.20 150
.25 200
.30 250
.35 300
Figure 5.2
Supply of Greebes
.05
0
.10
.15
.20
.25
.30
.35
.40
.45
.50
.55
QUANTITY (millions of Greebes)
PRICE PER GREEBE
50 100 150 200 250 300 350 400
S
2
S
S
1
Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education,New York, N.Y. 353
1
Macroeconomics
LESSON 3 ■ ACTIVITY 5
Answer
Key
UNIT
Other things constant, if the price of Greebes decreased to $0.20 per Greebe, suppliers would
be willing to offer 150
million Greebes. Such a change would be called a decrease in
(supply / quant
ity supplied).
2. Now, let’s suppose that there is a dramatic change in the price of several of the raw materials used in
making Greebes. This change in the ceteris paribus conditions underlying the original supply of
Greebes will result in a new set of data, such as that shown in Figure 5.3. Study the data, and plot this
supply of Greebes on the axes in Figure 5.2. Label the new supply curve S
1
and answer the questions
that follow.
3. Comparing the new supply curve (S
1
) with the original supply curve (S), we can say that a change
in the supply of Greebes results in a shift of the supply curve to the (le
ft / right). Such a shift indi-
cates that at each of the possible prices shown, suppliers are now willing to offer a (smal
ler / larger)
quantity; and at each of the possible quantities shown, suppliers are willing to accept a
(hig
her / lower) minimum price. The cause of this supply curve shift was a(n) (increase / decrease)
in prices of several of the raw materials used in making Greebes.
4. Now, let’s suppose that there is a dramatic change in the price of Silopanna, a resource used in the
production of Greebes. This change in the ceteris paribus conditions underlying the original supply of
Greebes will result in a new set of data shown in in Figure 5.4. Study the data, and plot this supply of
Greebes on the axes in Figure 5.2. Label the new supply curve S
2
and answer the questions that follow.
Comparing the new supply curve (S
2
) with the original supply curve (S), we can say that the change
in the supply of Greebes results in a shift of the supply curve to the (left / r
ight). Such a shift indi-
Figure 5.3
New Supply of Greebes
Price Quantity Supplied
($ per Greebe) (millions of Greebes)
$.20 50
.25 100
.30 150
.35 200
.40 250
Figure 5.4
New Supply of Greebes
Price Quantity Supplied
($ per Greebe) (millions of Greebes)
$.10 150
.15 200
.20 250
.25 300
.30 350
354 Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.
1
Macroeconomics
LESSON 3 ■ ACTIVITY 5
Answer
Key
UNIT
cates that at each of the possible prices shown, suppliers are now willing to offer a (smaller / larger)
quantity; and at each of the possible quantities shown, suppliers are willing to accept a
(lo
wer / higher) minimum price. The cause of this supply curve shift is a(n) (increase / decrease)
in the price of Silopanna, a resource used in the production of Greebes.
Part B
Now, to check your understanding, underline the answer you think is the one best alternative in each
of the following multiple-choice questions.
5. Other things constant, which of the following would not cause a change in the long-run supply of
beef?
(A)
A decrease in the price of beef
(B) A decrease in the price of cattle feed
(C) An increase in the price of cattle feed
(D) An increase in the cost of transporting cattle to market
6. “Falling oil prices have caused a sharp decrease in the supply of oil.”Speaking precisely, and using
terms as they are defined by economists, choose the statement that best describes this quotation.
(A) The quotation is correct: A decrease in price always causes a decrease in supply.
(B) The quotation is incorrect: A decrease in price always causes an increase in supply, not a
decrease in supply.
(C) The quotation is incorrect: A decrease in price causes an increase in the quantity supplied,
not a decrease in supply.
(D)
The quotation is incorrect: A decrease in price causes a decrease in the quantity supplied,
not a decrease in supply.
7. A multiyear drought in Florida has dried the land so that rampant wildfires have destroyed many
orange groves. Florida oranges supply much of the nation’s orange juice.Which statement below
is correct?
(A) The price of orange juice will rise because of a movement up the supply curve.
(B)
The price of orange juice will rise because the supply curve will shift to the left.
(C) The price of orange juice will fall because of a movement down the supply curve.
(D) The price of orange juice will fall because the supply curve will shift to the right.
8. A popular movie star wears a certain style of sunglasses. If her fans want to copy her look,
(A)
the price of the movie star’s brand of sunglasses will rise because of a movement up the supply
curve.
(B) the price of the movie star’s brand of sunglasses will rise because the supply curve will shift to
the left.
(C) the price of the movie star’s brand of sunglasses will fall because of a movement down the
supply curve.
(D) the price of the movie star’s brand of sunglasses will fall because the supply curve will shift to
the right.
Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education,New York, N.Y. 355
1
Macroeconomics
LESSON 3 ■ ACTIVITY 6
Answer
Key
UNIT
Reasons for Changes in Supply
Part A
Read the eight newspaper headlines in Figure 6.2, and record the impact, if any, of each event on
the supply of cars. Use the first column to the right of the headline to show whether the event will
cause a change in supply. Use the next column to record whether the change is an increase or a
decrease in supply. In the third column, decide whether the supply curve shifts left or right. Finally,
write the letter for the new supply curve. Use Figure 6.1 to help you. Always start at curve B, and
move only one curve at a time. Two headlines imply that the supply of cars does not change.
Supply If Supply Curve Shifts New
Headline Shift? (Y / N) Shifts, Inc / Dec Left / Right Curve
1. Auto Workers’ Union Agrees to Wage Cuts Y Inc. R C
2. New Robot Technology Increases
Efficiency Y Inc. R C
3. Nationwide Auto Strike Began at Midnight Y Dec. L A
4. New Import Quotas Reduce Foreign
Car Imports Y Dec. L A
5. Cost of Steel Rises Y Dec. L A
6. Auto Producer Goes Bankrupt; Closes
Operation Y Dec. L A
7. Buyers Reject New Models N — — —
8. National Income Rises 2% N — — —
Figure 6.1
Supply of Foreign and Domestic Cars
QUANTITY
PRICE
CA B
Figure 6.2
356 Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.
1
Macroeconomics
LESSON 3 ■ ACTIVITY 6
Answer
Key
UNIT
Part B
Categorize each change in supply in Part A according to the reason why supply changed. In Figure 6.3,
place an X next to the reason that the event described in the headline caused a change in supply. In
some cases, more than one headline could be matched to a reason. Two headlines do not indicate a
shift in supply.
↓
Reason Headline Number → 1 2 3 4 5 6 7 8
A change in costs of inputs to production
process x x x
A change in technology x
A change in the number of producers in
the market x x x
Government policies x
Figure 6.3
