Download Supply and Demand Slides

Warm up – August 29, 2016
For each item, think about how many of each you
would buy at the specific prices. Write this in
your notebook.
1. Song downloads: $2, $1.00, .50, .25, .10
2. Candy bars: $2, $1.50, $1, .50, .20
3. Jeans: $100, $50, $30, $20, $10
Intro to Demand (8/29)
I. What is demand?
II. Individ. demand schedule: how much is purchased at diff.
prices
Price
Quantity Demanded
$30
0
$25
0
$20
1
$15
3
$10
5
$5
8
The Law of Demand: We are more willing to buy
more units at a lower price
III. Individ. demand curve: plot demand schedule onto
graph
A. X-axis is ALWAYS quantity
B. Y-axis is ALWAYS price
C. Demand curve practice: plot one demand
schedule from your warm-up onto a set of axes.
IV. The market demand curve
A. Definition: shows quantities demanded by
EVERYONE
B. Find 2 or 3 partners in your area and choose one
warm up example to form a market demand
schedule. Each partner must write in their
Quantity Demanded
notebook. Example: Price
(Market)
$30
$25
$20
0+0+0 = 0
0+1+0 = 1
1+2+2 = 5
$15
3+4+3 = 10
C. Market demand curve: Plot your group’s market
demand schedule.
VI. Demand and marginal utility
A. Marginal utility: the extra satisfaction we get
from using one more unit of a product
B. Diminishing marginal utility: that extra satisfaction
diminishes as we use more units
1. Example: candy bars
a. Aren’t willing to pay as much for the 2nd,
3rd, 4th one
b. Explains why demand curve is
downward sloping
Factors Affecting Demand
I. Change in QUANTITY demanded
A. Movement along the demand curve
B. Price drops from 20 to 15  change in quantity demand
from 23 to 30
C. The Income Effect
1. If prices drop, consumers have more
real income to spend
2. Ex: CDs are $15 each, buy 6 CDs
($90 spent)
If price falls to $10, you only
spend $60.
You may buy even MORE CDs
with your “extra” $30
Quantity demanded: increases
from 6 to 9 units
D. The Substitution Effect
1. Price of CDs falls from $15 to $10 –
CDs are relatively cheaper now than
alternatives
2. Therefore, you are more likely to
replace a high cost item with a lower
cost
item (ex: buy more CDs instead of
DVDs)
II. Change in Demand
A. Causes a shift in entire demand curve
B. People willing to buy different amounts
at the same prices before
III. Factors affecting demand
A. Consumer income
1. What happens to demand when
increased?
B. Consumer tastes/tech
1. Example 1: trends
2. Example 2: VCRs
income is
C. Substitutes
1. Example: butter vs. margarine
D. Complements
1. Example: computers and software
E. Change in expectation
1. Example: future shortages/sales
F. Number of consumers
1. Increase in # of consumers  shift in
market demand curve
Demand Shift Practice (8/30)
1.
2.
3.
4.
5.
6.
7.
8.
Product: SUVs. Scenario: Because of world shortages, the price of oil
has sharply increased.
Product: TVs (considered a normal good). Scenario: People are
earning more money this year than last.
Product: Coffee in the US. Scenario: Immigration into the US
continues to increase.
Product: LA Lakers season tickets. Scenario: The LA Clippers (the
other basketball team in LA) have raised the price of their season
tickets.
Product: pinto beans (time of year is Spring). Scenario: Many more
farmers planted beans this year, and a huge supply of beans has been
forecasted for harvest (which takes place in the fall).
Product: hockey apparel in Las Vegas. Scenario: A new NHL team is
created for Las Vegas.
Product: chicken. Scenario: There is a huge surplus of beef on the
market.
Product: tickets to Disneyland. Scenario: Major airlines are promoting
cheaper fares throughout the US.
Let’s say you were making cookies to sell to people at
school. How many would you be willing to sell at
each price below?
$.10, $.25, $.50, $1.00, $2.00, $5.00, $10.00
Supply
I. Law of Supply: suppliers will normally offer more for
sale at higher prices and less at lower prices
II. The supply schedule and individual supply curve
Price
Quantity
supplied
20
15
10
5
10
8
6
4
III. The market supply curve: all firms that offer
the product
Firm A
Quantity
Price
Firm B
Quantity
Price
supplied
Firm C
Quantity
Price
supplied
supplied
20
10
20
12
20
9
15
9
15
7
15
7
10
8
10
5
10
4
5
7
5
3
5
2
+
Price
+
Quantity supplied (market)
20
31
15
22
10
17
5
12
=
IV. Change in QUANTITY supplied: movement along
the supply curve
V. Change in supply: shift in the supply curve
(increase or decrease)
V. Factors affecting supply
1. Cost of inputs: if costs are high, supply
decreases
2. Changes in prices of related goods/services
Ex: Bakeries that sell cookies and pies. Price
of pies increases  supply of cookies falls
Ex: Wheat and straw. Increase in price of
wheat  inc in quantity supplied of wheat  inc
in supply of straw (complement in production)
3. Technology/motivation:
a. Better technology = more efficient
production = increase supply
4. Taxes and subsidies:
a. Increase in taxes = increase in costs
 lower supply
b. Subsidies: govt payment to
encourage a specific
economic activity
Example: farmers
5. Expectations:
6. Government regulations
a. Scenario: the govt forces car
manufacturers to update safety
features  decrease supply
7. Number of sellers: as more firms enter
the industry, the market supply will increase
Partner activity:
1. With your partner, come up with a product that
your business produces.
2. Using six factors that affect supply (every one
except for # of sellers), come up with
scenarios that would shift your supply curves
in whatever direction you choose. Write out the
scenario and graph the shift in supply for each
Warm-up: August 31, 2016
1. Other things constant, which of the following would
NOT cause a change in the supply (shift in the supply
curve) for wheat?
A. A decrease in the price of diesel gas (to run combine
thrasher)
B. A decrease in the price of wheat
C. An increase in business taxes
D. An increase in the number of wheat farmers
2. “Rising oil prices have caused a sharp increase in the
supply for oil.” Speaking precisely, and using terms as they
are defined by economists, choose the statement that best
describes this quotation.
A. The quotation is correct: An increase in price
always causes an increase in supply.
B. The quotation is incorrect: An increase in price
always causes a decrease in supply, not a
increase in supply.
C. The quotation is incorrect: An increase in price
causes an increase in the quantity supplied,
not an increase in supply.
D. The quotation is incorrect: An increase in price
causes a decrease in the quantity supplied,
not a increase in supply.
3. “As the price of domestic automobiles has inched upwards,
customers have found foreign autos to be a better bargain.
Consequently, domestic auto sales have been decreasing, and
foreign auto sales have been increasing.” Using only the info in
the quotation and assuming everything else constant, which of
the following best describes this statement?
A. A shift in the demand curves of both domestic and
foreign autos.
B. A movement along the demand curves for both
domestic and foreign autos.
C. A movement along the demand curve for domestic autos,
and a shift in the demand curve for foreign autos.
D. A shift in the demand curve for domestic autos, and a
movement along the demand curve for foreign autos.
Market Equilibrium
(8/31/16)
Graph the following supply and demand
schedules onto the same set of axes.
Price
Quantity
Supplied
Quantity
Demanded
$25
22
4
$20
18
9
$15
13
13
$10
9
20
$5
6
25
Surplus: Quantity supplied is greater than
quantity demanded
Example 1: $25
Example 2: $20
Real-life example:
Shortage: Quantity supplied is less than
quantity demanded
Example 1: $5
Example 2: $10
Real-life example:
Changes in Supply and Demand
Draw a generic supply and demand graph for coffee.
Don’t forget labels!
Scenario: The price of tea has increased.
1. Effect on demand/why?:
2. Effect on equilibrium price:
3. Effect on equilibrium quantity:
Draw a generic supply and demand graph for cakes.
Scenario: The price of flour has increased.
1. Effect on supply/why?:
2. Effect on equilibrium price:
3. Effect on equilibrium quantity:
Draw a generic supply and demand graph for pants
Scenario: Because of a decrease in the price of
cotton, pants are now cheaper, despite the repeal of
school rules that force all girls to wear skirts.
Warm-up: September 1, 2016
1. If the demand for baseball cards rises and the supply curve does
not shift, then the price
a. will rise and quantity will fall
b. and quantity will rise
c. will fall and quantity will rise
d. and quantity will fall
e. will rise, but quantity may rise or fall
2.Which of the following would increase the amount of an inferior
good that buyers would like to purchase?
a. an increase in buyers' incomes
b. an increase in the price of a complement
c. a decrease in the price of a substitute
d. a decrease in buyers' incomes
e. a decrease in its expected future price
3. Wages of bus drivers increase. At the same time, incomes of
consumers generally increases. In the market for bus rides (a
normal good), the supply of rides will _______ and the demand
for rides will _________.
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase
e. not change; increase
4. Consider the situation above. What will happen to the price
and quantity of rides sold?
a. price definitely increases, quantity definitely increases
b. price definitely increases, quantity definitely decreases
c. price definitely decreases, quantity change is ambiguous
d. price definitely increases, quantity change is ambiguous
e. price change is ambiguous, quantity change is ambiguous