Week 4 — Lecture Outline · Supply & Market Equilibrium

Course: Principles of Microeconomics (ECON 1) · Silver Oak University (fictional sample) · Prof. Kessler
Objective 2 — demand, supply & market equilibrium; comparative statics · SLO A & B
Meeting pattern: two 75-min sessions (≈150 min). Segment minutes below total ~150 — scale to your room.

The deck (E), the tutorial (C), and the workshop (P) all teach from this outline. Every number here is pre-computed and independently verified (see the verified box in §4).

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Week at a glance

Big question	Where do prices come from — and what forces move them up or down?
By week's end students can	(1) state the law of supply and identify supply shifters vs. movements along; (2) solve Qd = Qs for equilibrium P* and Q*; (3) diagnose surplus or shortage at an off-equilibrium price; (4) apply comparative statics — trace a shift to new P and Q, with the correct curve moving the correct direction.
Key vocabulary	law of supply, supply curve, supply schedule, supply shifter (input prices, technology, taxes/subsidies, # sellers, expectations, weather), movement along vs. shift, equilibrium, market-clearing price, surplus (excess supply), shortage (excess demand), comparative statics
Materials	whiteboard; the Week-4 readings/links; Desmos for plotting Qd and Qs; an approved chatbot
Timing note	8 segments ≈ 150 min across two sessions. Trim Segment 7 (interaction) if short on time.

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Segment 1 — HOOK: "Why is your rent going up?" (10 min)

Open with a quick show of hands: "How many of you (or someone you know) have seen rent go up in the last couple of years?" Then the promise: "By the end of this week, you'll have the economic tools to explain exactly why that happened, and what it would take to bring prices down." Scarcity (Week 1) forced trade-offs. Demand (Week 3) showed how buyers respond to price. Today we bring in the other side of every market — suppliers — and we let the two sides meet.

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Segment 2 — THE LAW OF SUPPLY (18 min)

Teach it in one sentence, then build:

The law of supply: producers supply MORE of a good at HIGHER prices and LESS at LOWER prices, all else equal. The supply curve slopes UPWARD.

Why? Two interlocking reasons students retain: (1) Higher prices make production more profitable, so existing sellers expand and new sellers enter. (2) Higher prices cover the higher marginal costs of producing more units (a consequence of diminishing returns, which we study in depth in Week 9).

Supply schedule example (draw the table):

Price (P)	Quantity Supplied (Qs) using Qs = −20 + 4P
10	20
15	40
20	60
25	80

Say aloud: "At P = 20, Qs = −20 + 4·20 = 60. At P = 25, Qs = −20 + 4·25 = 80. As price rises, quantity supplied rises — the upward slope."

TRAP (name it now): A change in the good's OWN PRICE changes the QUANTITY SUPPLIED — it moves you along the supply curve; it does NOT shift the curve. Only changes in something OTHER than the good's price shift the whole curve. Drill this immediately.

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Segment 3 — SUPPLY SHIFTERS (15 min)

The six determinants that actually SHIFT the supply curve (use the mnemonic TIPSE-W — Technology, Input prices, # Producers, Subsidies/taxes, Expectations, Weather for ag):

1. Input prices — wages, raw materials. ↑ input cost → supply DECREASES (left shift → less Q at every P). This is the chief distractor: students often say "demand fell."
2. Technology — better tech → supply INCREASES (right shift → more Q at every P). The week's main comparative-statics example: a fall in input prices increases supply.
3. # Sellers/producers — more sellers → supply increases.
4. Taxes and subsidies — a per-unit tax raises production cost → supply decreases; a subsidy lowers cost → supply increases.
5. Expectations — if sellers expect a higher price tomorrow, they may hold back today → supply today decreases.
6. Weather / natural events — especially agricultural supply.

The cardinal rule: ↑ Supply → curve shifts RIGHT (more quantity at every price). ↓ Supply → curve shifts LEFT (less quantity). Right = more. Left = less. Write both on the board and leave them up.

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Segment 4 — EQUILIBRIUM: SOLVING FOR P* AND Q* (28 min)

Now the payoff of combining Weeks 3 and 4. The equilibrium is the price–quantity pair where quantity demanded equals quantity supplied. At equilibrium, the market clears — no unsatisfied buyers lined up, no unsold inventory piling up.

Algebraic method (do every step on the board):

VERIFIED NUMBERS — use exactly:
Qd = 100 − 2P (from Week 3 style)
Qs = −20 + 4P

Set Qd = Qs:
100 − 2P = −20 + 4P
120 = 6P
P* = 20

Plug back in:
Q* = 100 − 2(20) = 100 − 40 = 60
Check: Qs = −20 + 4(20) = −20 + 80 = 60 ✓

Equilibrium: P* = $20, Q* = 60 units.

Graphical interpretation (describe and draw): the demand curve slopes down, the supply curve slopes up; they cross at (Q=60, P=20). This intersection is the market-clearing equilibrium.

Surplus and shortage — reading off-equilibrium prices:

• At P = 25 (above equilibrium): Qd = 100 − 2(25) = 50; Qs = −20 + 4(25) = 80. SURPLUS = 80 − 50 = 30 units. Too much is supplied; unsold inventory accumulates; sellers cut the price. The surplus pushes price DOWN toward equilibrium.
• At P = 10 (below equilibrium): Qd = 100 − 2(10) = 80; Qs = −20 + 4(10) = 20. SHORTAGE = 80 − 20 = 60 units. Too little is supplied; buyers compete for the good; sellers raise the price. The shortage pushes price UP toward equilibrium.

The self-correcting market: equilibrium is where both pressures disappear. Teach it as a gravitational pull — the market always tends toward the price where the graph's two curves cross.

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Segment 5 — COMPARATIVE STATICS: THE SUPPLY-INCREASE EXAMPLE (20 min)

This is the week's centerpiece analytical move. A supply shock changes the equilibrium. The steps — always the same:

1. Identify the shock — which curve? which direction?
2. Shift the right curve the right way.
3. Find the new equilibrium (algebra or graph).
4. State the new P and Q — and the direction of change.

Worked example — supply increases by 30 (verified):

Suppose input prices fall (e.g., cheaper materials). This INCREASES supply — the supply curve shifts RIGHT. Every unit is now cheaper to produce, so sellers supply 30 more units at every price.

New Qs = −20 + 4P + 30 = 10 + 4P.

New equilibrium: set Qd = new Qs:
100 − 2P = 10 + 4P
90 = 6P
New P = 15 (price FALLS — supply increase → price goes down)

New Q = 100 − 2(15) = 70 (quantity RISES — supply increase → quantity goes up)
Check: new Qs = 10 + 4(15) = 70 ✓

New equilibrium: P = $15, Q = 70 units.
P fell from 20 to 15; Q rose from 60 to 70.

Graph logic (draw both curves; re-draw the new supply curve to the right): the new supply curve, Qs = 10 + 4P, intersects the demand curve Qd = 100 − 2P at (70, 15) — lower price, higher quantity. The supply increase MOVED THE SUPPLY CURVE RIGHTWARD; demand did NOT move.

Direction summary to cement: ↑ Supply → P↓, Q↑. ↓ Supply → P↑, Q↓. (And from Week 3: ↑ Demand → P↑, Q↑; ↓ Demand → P↓, Q↓.)

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Segment 6 — POSITIVE vs. NORMATIVE + BOTH-SHIFT TRAP (12 min)

Two quick but load-bearing points before technology and interaction.

Trap: both-curves shift. If BOTH demand AND supply shift simultaneously, one of P or Q is ambiguous (indeterminate). Example: if demand rises AND supply rises at the same time, Q definitely rises, but P could go up, down, or stay the same — we'd need to know the magnitudes. Draw this on the board. The trap on every quiz and exam: students say "P rises" when P is actually ambiguous. The correct answer when both shift: state what IS determinate, and flag P or Q as ambiguous.

Positive vs. normative (thread from Week 1): "Input prices fell, so supply increased and price dropped" is a positive statement — we computed it. "The government should subsidize this good to increase supply" is a normative judgment. Keep the distinction live all term.

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Segment 7 — TECHNOLOGY WORKFLOW + AI-CRITIQUE (20 min)

Live demo (Desmos or spreadsheet): type y = (100 − x)/2 (demand: solve Qd = 100 − 2P for P) and y = (x + 20)/4 (supply: solve Qs = −20 + 4P for P) into Desmos. The curves cross at (60, 20). Then type the new supply y = (x − 10)/4 — the intersection shifts to (70, 15). Students see the price fall and quantity rise in real time.

AI-critique moment: Ask the chatbot: "In a market with Qd = 100 − 2P and Qs = −20 + 4P, what is the equilibrium? Then if supply increases by 30, what is the new equilibrium?" Audit together: correct answer P* = 20, Q* = 60; after supply shift P = 15, Q = 70. Chatbots frequently (a) compute the initial equilibrium correctly but then shift the wrong curve (move demand instead of supply), (b) get the direction backwards (say "price rises" when supply increases), or (c) fail to re-solve the algebra and just guess. Make the class catch each error.

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Segment 8 — CALLBACKS, TEASE & THE WEEK'S WORK (12 min)

• Callback: three weeks in, you have the full demand-and-supply model — the most-used tool in economics. Scarcity (W1) forces trade-offs. Trade gives gains (W2). Demand (W3) and supply (W4) together determine the equilibrium P and Q that clears the market. This model will appear in every remaining week.
• Tease next week: "Next week: elasticity. Once you know WHERE the equilibrium is, you need to know HOW MUCH it moves when something changes — and whether that's a little or a lot. The answer determines who really pays a tax, and why drug dealers (in the model) are so resistant to price changes."
• The week's work: Lecture Tutorial, Practice, Quiz 4, Discussion 4 (housing and supply), Assignment 4, and Workshop 4 — solve two equilibria, plot both supply curves in Desmos, and catch the AI's curve-shift error.

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Instructor FAQ — common stumbles

• "A price change shifts the supply curve." No — a change in the good's own price changes the quantity supplied — you move along the curve. Only an external factor (input price, technology, etc.) shifts the whole curve.
• "Supply increased, so price increases." Wrong direction. ↑ Supply → the curve shifts RIGHT → at the OLD price, Qs > Qd → surplus → price is bid DOWN. More supply means lower prices (holding demand constant).
• "I found P* but then I used the wrong curve to find Q*." Always plug P* into BOTH equations and verify they give the same Q — that's the check.
• "If both curves shift, just add the effects." Only sometimes. If both shift in ways that each push Q up, then Q is unambiguously up. If one shock pushes P up and the other pushes P down, P is ambiguous (indeterminate). You must reason about magnitudes.
• "The graph crosses at a weird point." If the algebra gives a clean answer, the graph should too — check you plotted the functions correctly. In Desmos, plot demand as P = (100−Q)/2 and supply as P = (Q+20)/4, then trace the intersection.