Download Supply & Demand

Supply & Demand
Before We Start
• Economic Terms:
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Market
Competitive Market
Perfectly Competitive
Normal Good
Inferior Good
Substitutes
Complements
Ceteris Paribus
• “Other things being equal”
Demand
• Quantity DemandedShift along Demand Curve
• Price
• Determinants of DemandShift of the Demand
Curve
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Price of related goods
Income
Tastes
Expectations
Number of buyers or sellers
Demand Schedule
• Ice cream cones
• Price
•
•
•
•
•
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•
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
Quantity
12
10
8
6
4
2
0
Demand Curve
P
3
2.5
2
Demand Curve
1.5
1
0.5
0
0
2
4
6
8
10
12
Q
Market Demand
• Market = Sum of parts
• 2 person Market
• Price
•
•
•
•
$0.00
$1.00
$2.00
$3.00
Anne
Bill
Market
12
8
4
0
7
5
3
1
19
13
7
1
Shift In Demand
• What happens when there is a Change in
Demand?
• Changes caused by factors other than price.
• Examples:
• > income increases demand for luxury cars
• < price in gas decreases demand for economy cars
Shift In Demand
Question
• Give two economic
ways (in terms of
demand) that the
government could use
to stop teenage
smoking.
• Use graphs to show
your work for both
answers.
Supply
What Determines Supply?
• Determinants
• Terms
• Price
• Law of Supply
• Input Prices
• Supply Schedule
• Technology
• Supply Curve
• Expectations
Supply
• Quantity SuppliedMovement along Demand
Curve
• Price
• Determinants of SupplyChange in the Demand
Curve
•
•
•
•
•
Price of related goods
Input Prices
Technology
Expectations
Number of buyers or sellers
Supply Schedule
• Price
•
•
•
•
•
•
•
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
• Quantity
•
•
•
•
•
•
•
0
0
0
0
4
8
12
Supply Curve
P
3
2.5
2
Supply Curve
1.5
1
0.5
0
0
2
4
6
8
10
12
Q
Shift In Supply
Question
• Using a supply curve
graph, demonstrate
the effects of the
following on Health
Care supply.
• Universal coverage
• Elimination of Caps
Equilibrium
• Supply & Demand
• Intersection
determines
• Price
• Quantity
• Terms
• Surplus
• Quantity > demand
• Shortage
• Demand > quantity
Equilibrium Graph
P
3
2.5
2
Demand Curve
Supply Curve
1.5
1
0.5
0
0
2
4
6
8
10
12
Q
In an attempt to get rid
of surplus stock,
producers will accept
lower prices. Lower
prices in tn attract
some consumers to
buy.
S The process
continues until the
surplus disappears and
equilibrium is once
again reached.
The Market - Surplus
Price (£)
Surplus
£5
£3
D1
300
450
600
A shift in the demand
curve to the left will
reduce the demand to
300 from 500 at a
price of £5. Suppliers
do not have the
information or time to
adjust supply
immediately and still
offer 600 for sale at
£5. This results in a
market surplus (S >
D
D)
Quantity Bought and Sold (000s)
The shortage in the
market would drive
up prices as some
consumers are
prepared to pay
more. The price will
continue to rise
until
S the shortage
has been competed
away and a new
equilibrium position
has been reached.
The Market - Shortage
S1
Price (£)
£8
£5
A shift in the supply
curve to the left
would lead to less
products being
available for sale at
every price.
Suppliers would
only be able to offer
100 units for sale at
a price of £5 but
consumers still
desire to purchase
600. This creates a
market
D shortage. (S
< D)
Shortage
100
350
600
Quantity Bought and Sold (000s)
Increase in Demand
Price
D1
D2
Quantity
Decrease in Demand
Price
D2
D1
Quantity
Increase in Supply
Price
S1
S2
Quantity
Decrease in Supply
Price
S2
S1
Quantity
Demand Up & Supply Up
 Price Undetermined & Quantity Up
Price
S1
S2
D1
D2
P1
Q1
Q2
Quantity
Demand Down & Supply Down 
Price Undetermined & Quantity Down
Price
S2
S1
D2
D1
P1
Q2
Q1
Quantity
Demand Down & Supply Up 
Price Down & Quantity Undetermined
Price
S1
S2
D2
D1
P1
P2
Q1
Quantity
Demand Up & Supply Down 
Price Up & Quantity Undetermined
Price
S2
S1
D1
D2
P2
P1
Q1
Quantity