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Name: __________________ AP ECONOMICS----Ippolito Changing Supply and Demand Solving supply & demand problems requires a careful step by step approach. If you “rush” or skip steps you greatly increase your odds of making a mistake. To maximize your efficiency, I suggest you follow the 3 step process listed below. A few words of caution: > Some problems do not require a new demand or supply curve > Some problems may require you to shift both curves > You will not be able to determine the effect on equilibrium price on all problems 3-Steps to solving Supply & Demand Problems STEP #1 1) Draw the initial Supply and Demand Curve 2) Label all curves/points & the graph itself (at the bottom) STEP #2 3) Determine what occurs due to the economic change: change in demand or change in quantity demanded change in supply or change in quantity supplied or, possibly, a change in demand and a change in supply [Hint: you cannot have a change in quantity demanded & a change in demand-------—it is one or the other Same goes with supply…..] STEP#3 5) 6) 7) 8) If you have a change in quantity demanded or quantity supplied, move along the existing curve If you have an change in supply or a change in demand shift the appropriate curve State the Determinant of Supply or Demand that caused either curve to shift? (TIPSEN or TINE & TP) Determine the effect on equilibrium price (same, higher, lower or indeterminate) Warning: Your book does not cover all the determinants of supply----use the acronyms to remember them for test purposes Whenever a determinant changes => You need to shift the respective curve (draw a new curve!) 6 DETERMINANTS OF DEMAND (TIPSEN) • Tastes • Incomes • Price Complements • Substitute Price • Expectations (future prices, income, etc…) • Number of Buyers 6 DETERMINANTS OF SUPPLY (TINE) & (TP) • Technology • Input Prices (cost of an input like oil, steel or labor) • Number of Sellers • Expectations (of future prices, etc…) • Also: TP • Taxes or Subsidies • Price of other outputs (what else could you produce)