Download Project on Supply and Demand

Mr. Mateas
Senior Math Seminar
Project on Supply and Demand
Overview:
In this unit we have studied how the law of supply and the law of demand explain the way in
which the quantity supplied and the quantity demanded are effected by price and how market
equilibrium is established. We have also studied how various non-price determinants influence
supply and demand.
In this project we will use our knowledge of microeconomics and mathematics to analyze
examples of how and why market equilibrium has changed for various products. We will then
use what we learn in this project to make predictions of how market equilibrium for our product
may change in the future given changing conditions.
Part I: Supply and Demand of iPhone in 2008
In 2008 iPhones were the newest and most advanced smartphones on the market. The iPhone had
little competition since no phone could match all of the amazing features the iPhone offered or
its vast number of apps. Below is the supply and demand curve for iPhones in 2008.
Price
$200
$600
Quantity Supplied
(in thousands)
200
1,000
Quantity Demanded
(in thousands)
1,000
200
1. Using the supply and demand schedule given above, graph the supply and demand curves
on the grid. Label each line as supply or demand in year 2008.
Mr. Mateas
Senior Math Seminar
2. Write an equation for the supply curve for the iPhone in 2008.
3. Write an equation for the demand curve for the iPhone in 2008.
4. Using your system of equations calculate the market equilibrium for the iPhone in 2008.
Mr. Mateas
Senior Math Seminar
Part II: Supply and Demand of iPhone in 2010
In 2010, the iPhone is still an advanced smartphone. However unlike 2008, more smartphone
options are available, some at a cheaper price. Today phones such as the Motorola Droid and the
newest Blackberry are competing with the iPhone. Due to this, consumers are willing to buy
800,000 less iPhones than before at each price level.
1. What is the non-price determinant of supply or demand occurring? Be specific!
2. How is the non-price determinant influencing the supply and demand of iPhones? Is
supply or demand increasing or decreasing?
3. Write an equation for the demand curve of iPhones in 2010. Use the demand equation for
iPhones in 2008 to write the demand equation for iPhones in 2010.
4. Graph the new line on the grid from Part 1 Question 1. Label this line as supply/demand
curve for 2010.
5. What is the supply equation for iPhones in 2010?
6. Using your system of equations, find the market equilibrium for iPhones in 2010.
Mr. Mateas
Senior Math Seminar
Part III: Analysis of Market Equilibrium Changes for iPhones from 2008 to 2010
1. What is market equilibrium?
2. What would happen IF the price of iPhones doesn’t change in 2010 and remains the same
price as the market equilibrium price in 2008? You must answer the following:
a. What would the quantity supplied in 2010 be at this price?
b. What would the quantity demanded in 2010 be at this price?
c. What market condition would exist in this scenario?
d. Based on parts a through c, why is it important to always be at market
equilibrium?
3. How did the supply and demand curves change from 2008 to 2010? Use several
sentences explaining what changes (if any) happened to the supply and demand for
iPhones from 2008 to 2010.
4. Why did this shift occur from 2008 to 2010? (think back to your non-price determinants
and be specific!!!)
Mr. Mateas
Senior Math Seminar
5. Sketch a picture of the supply and demand curves for iPhones in 2008 and 2010. Label all
your lines.
6. How did the market equilibrium for iPhones change from 2008 to 2010? Make sure your
answer includes what the market equilibrium was in both years.
7. Why did the market equilibrium for iPhones change from 2008 to 2010? Make sure to
explain this change using your sketch in #4 AND write one paragraph. Your explanation
MUST relate back to what is happening to the supply and demand curves and the nonprice determinants at work.
Mr. Mateas
Senior Math Seminar
Part IV: Predicted Future Market Equilibrium for iPhones
Economists do not only use supply and demand to explain how prices are set for products at the
moment, they can also use the laws of supply and demand to make predictions of what will
happen to the market for a given product.
Consider the following prediction:
Apple is expected to strike a deal with the makers of microchips that are used in iPhones.
Suddenly it costs Apple much less to produce an iPhone because the materials needed are
cheaper.
1. What type of non-price determinant is described in the prediction above?
2. What change in the supply/demand of iPhones do you predict will occur? (ie, do you
think supply/demand will increase or decrease?).
3. Sketch a picture comparing the supply and demand of iPhones now and the predicted
supply and demand in the future. Label your lines supply/demand NOW and
supply/demand FUTURE.
4. What change in the market equilibrium do you expect to happen? Be specific and explain
if there will be an increase or decrease in: (1) price, (2) quantity demanded and quantity
supplied. Use your sketch from #3 to help you determine the change.