Download Supply and Demand: Making the Graphs Describe Our Economy

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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)