Download 2.1 Supply.Demand.Shifters

ECON-U4-L2 What is “Demand”? What is the “Law of
Demand”? Why is the demand curve downward sloping?
DEMAND
Demand- the relationship between various prices
and the quantities consumers are willing and able
to buy during some time period, holding all other
factors constant.
Law of Demand- the inverse relationship between
price and quantity demanded.
For $500?
For $200?
For $100?
For $50?
For $20?
LET’S GRAPH IT!
On a demand graph, the price is always on the
vertical axis and the quantity is always on the
horizontal axis. *
What does the demand curve look like?
A demand curve ALWAYS is downward sloping
because as the price goes down the quantity
demanded goes up and as the price goes up the
quantity demanded goes down. *
REMEMBER- D is for Demand and for Downward!*
ECON-U4-L4 What is “supply”? What is the “Law of
Supply”?
$8/hr
$10/hr
$12/hr
$14/hr
Wage rate (V) Hours of Labor (H)
LET’S GRAPH IT!
On a supply graph, the price is always on the
vertical axis and the quantity is always on the
horizontal axis. *
What does the supply curve look like?
A supply curve ALWAYS is upward sloping
because a higher price will result in more
quantity supplied. *
REMEMBER- UP is in sUPply! *
The Market Never Stands Still
RIPEN and GRENT
“Determinants of Supply and
Demand”
Determinants of Demand
(Things that shift the entire line!)
•R
•
•
•
•
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for the other good
decreases; if price of the complement decreases, demand for the other good
increases
Substitutes: if price of substitute increases, demand for other good increases; if
price of substitute decreases, demand for other good decreases
– income increases, demand increases; income decreases, demand
Income
decreases
– preferences increase, demand increases; preferences decrease,
Preferences
demand decreases
E xpectations – expect higher prices in future, current demand increases
expect lower prices in future, current demand decreases
N umber of buyers – # of buyers increase, demand increases; # of buyers
decrease, demand decreases
Shifts in Demand
4.00
3.50
Demand price
3.00
2.50
A
B
2.00
1.50
C
D
1.00
E
F
0.50
D1
D2
0.00
10
20
30
40
50
60
70
Quantity of pecans per day
80
IRDL the Turtle!!!!
Increase Right, Decrease Left
Pecan Article
• http://online.wsj.com/news/articles/SB10001
424052748704076804576180774248237738
Pecan statements
1. Lunar New Year, Chinese love Pecans on New year
2. Corn syrup, used with pecans to make pecan pie, has
risen in price
3. Price of walnuts increases
4. Household income increases in China
5. Price of pecans drops
6. US trade agreements allow for more pecans to be sold
in more countries
7. Pecan prices expected to be higher next year
8. Famous celebrities seen eating pecans at award
ceremonies
Determinants of Supply
(from Cannon)
• G
overnment decisions
TAXES – taxes increase, supply decreases; taxes decrease, supply increases
SUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply
decreases
REGULATIONS – regulations increase, supply decreases; regulations decrease,
supply increases
• R
esource prices or availability -
• E
xpectations – expect to sell more, supply increases; expect to sell less,
•resource prices have an inverse relationship with supply
•resource availability has a direct relationship with supply
supply decreases; expect to sell at future higher prices, immediate supply
decreases.
• N umber of producers – direct relationship to supply
• T echnology or training – direct relationship to supply
Shifts in Supply
4
3.5
S1
Supply price
3
S2
2.5
A
2
B
1.5
C
1
D
E
0.5
F
0
10
20
30
40
50
60
Quantity of pecans per day
70
80
Pecan Statements (supply)
1. US farmers cutting down pecan groves to make way for
more profitable crops
2. Price of pecan-shelling machines rises greatly
3. Price of pecans falls as consumers prefer hazelnuts*
4. Scientists successfully produce genetically modified pecan
trees that can produce twice as much as a normal tree
5. Engineers develop machines that “shake” the nuts out of
trees
6. US gov’t provides subsidies to pecan growers
7. A flood destroys pecan groves in Georgia
8. Pecan producers expect lower pecan prices due to declining
demand for nuts
Shifter’s Practice
(on the back of guided notes)