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AP Econ F16
Week#4
Economics 9/26/16
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• OBJECTIVE: Examine Supply, Demand and
Market Equilibrium. AP Macro-I.D
• Language objective: SWBAT define essential vocabulary on
Demand, write notes on the Law of Demand and also write
answers to questions and read about Supply.
• I. Notes#7
-Daily Opener#7: Ch#3 Vocabulary
-notes on Demand
• II. Homework: Questions#1-3 p.66 & Problem#1
Daily Opener #7 Vocabulary
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Demand
Law of Demand
Diminishing marginal utility
Income Effect
Substitution Effect
Demand Curve
Normal goods
Inferior goods
Substitute good
Complimentary good
What is demand?
• Demand – the desire, ability, and
willingness to buy a product.
• Law of Demand – the quantity
demanded of a good or service varies
inversely with its price.
Demand Schedule
• demand schedule a listing that shows
the various quantities
demanded of a
particular product at
all prices that might
prevail in the market
at a given time.
Demand Curve
• demand curve - a
graph showing the
quantity demanded at
each and every price
that might prevail in
the market.
PRACTICE
• Using the information below, graph a
demand curve.
• Make sure to label the axis and the curve!
Simplistic view of demand
• As price increases,
demand decreases
• As price decreases,
demand increases
• This is an inverse
relationship (Law of
Demand)
• When an inverse
relationship is graphed,
the slope is negative
• Demand Curve
Marginal Utility
• Utility – the amount of usefulness or
satisfaction that someone gets from the
extra use of a product
• Marginal utility – the extra usefulness
or satisfaction a person gets from
acquiring or using one more unit of a
product
Diminishing Marginal Utility
• The more and more of a product we
acquire, the extra satisfaction we get from
using additional quantities of a product
begins to diminish.
Example #1:
• How much satisfaction would you get from
this?
Demand Changes
• Change in quantity demanded – movement
along the demand curve
• Change in demand – shift in the demand
curve
Change in Demand v. Change in
Quantity Demanded
Change in Quantity Demanded
• When a change in price
causes a change in
quantity demanded.
• In this case, a lower
price leads to an
increase in quantity
demand.
Change in quantity demanded
• Income effect – the change in quantity
demanded because of a change in price alters
consumers’ real income.
• Substitution effect – the change in quantity
demanded because of a change in the relative
price of a product
Example of the income effect
• If the price of a movie drops from $9 to $3,
you might see more films because you have to
work 2/3 less than you did before to see one
movie.
• When the price of goods and services drop
and your income stays the same, you can buy
more. It has a similar effect of a pay raise if
prices remain the same.
Example of the substitution effect
• If Wendy’s raised the price of their $.99 extra
value menu to $1.99 you may choose to
substitute Wendy’s food with McDonalds
$1.00 menu.
Change in Demand
• When there is no change in
price, but there is a change
in the amount demanded at
each and every price level.
• In this case, price didn’t
change but more was
demanded.
Change in Demand
• Consumer income – as income goes up, the
amount of goods and services you can buy
also goes up
• Consumer tastes – advertising, news reports,
and style changes cause consumers to
demand more or less of a product
• Substitutes – products that can be used in
place of other products i.e. butter/margarine
• Complements – goods that increase our use
of other goods
• Change in expectations – the willingness to
buy more or less of a product based on future
predictions
• Number of consumers – as more consumers
enter the market demand curve will shift to
the right & vice versa.
Exit Question#7
• 7.) What is the difference between the income
effect and consumer income?
Economics 9/27/16
http://mrmilewski.com
• OBJECTIVE: Examine Supply, Demand and
Market Equilibrium. AP Macro-I.D
• Language objective: SWBAT define essential vocabulary on
Demand, write notes on the Law of Demand and also write
answers to questions and read about Supply.
• I. Notes#8
-Daily opener: Draw a change in demand for a
good or service drops in popularity.
-notes on Demand
• II. Homework: Questions#4-6 p.66 & Problem#2
p.67
Complements
• What are the complements
for Tony the Tiger?
• If Larry’s Foodland put
milk on sale, what might
this do to Tony the Tiger?
How Milk Prices affect Tony
• The decrease in the price of
milk will increase the
demand for cereal.
Substitutes
• What are the substitutes for
this Fabio endorsed
product?
• What would happen if
Larry’s Foodland increased
the price of butter?
How higher butter prices help Fabio
An increase in the price of
butter will increase demand
for the substitute good, “I
Can’t Believe It’s Not Butter”
Example#3
• Meijer brand blades are
cheaper than the
national brand blades.
This week the National
brand goes on sale.
What happens to the
demand for Meijer
Brand Blades and the
National Brand.
Law of Supply
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The principle that suppliers will normally
offer more for sale at higher prices and less
at lower prices.
As price goes up, quantity produced also
goes up
Supply Curve
• At high prices more will
be supplied. At lower
prices, less will be
supplied.
• Price and quantity
supplied are directly
related.
• The drawing to the right
is a typical supply
curve.
Supply Schedule
• Supply schedule is just
like the demand
schedule, but the supply
schedule shows both
quantity supplied and
price rise together.
Construct a Supply curve using the
following data
On your supply curve
• Label the point where price is $15 and quantity
supplied 4 units as point a.
• Next label the point where price is $20 and
quantity supplied is 6 units as point b.
• Movement from point a to point b, or to any
other point along the supply curve is
movement in quantity supplied.
Movement along the Supply Curve/
Change in quantity supplied.
Change in supply
• A change in supply
occurs when something
happens to cause
suppliers to offer
different amounts of
products for each price
in the market.
What can cause a change in supply to the
right?
• Lower cost of inputs such as cheaper labor or cheaper
packaging
• More productive/better trained labor.
• New technology like more fuel efficient delivery
vehicles, better/faster machines
• Lower taxes/government subsidies (subsidy is a
government payment to an individual or business to
encourage or protect a certain economic activity.)
What can cause a change in supply to the left?
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More expensive labor
Higher taxes
Less efficient workers
Broken technology
Withdrawal of subsidies
Exit Question#8
• 8.) What is the difference between the law of
supply and the law of demand?
Homework Tonight
• Questions 4-6 on page 66.
Problem #2 on page 67.
Economics 9/28/16
http://mrmilewski.com
• OBJECTIVE: Examine Supply, Demand and Market
Equilibrium. AP Macro-I.D
• Language objective: SWBAT define essential vocabulary on Equilibrium, write
notes on the Market Equilibrium and also read and write answers to
questions about changes in Demand and Supply.
• I. Administrative Stuff
-Review Homework
-ACDC Econ Demand Explained
-ACDC Econ Supply & Demand (old version)
• II. Homework
-Review Chapter#3
Economics 9/29/16
http://mrmilewski.com
• OBJECTIVE: Examine Supply, Demand and Market
Equilibrium. AP Macro-I.D
• Language objective: SWBAT define essential vocabulary on Equilibrium, write
notes on the Market Equilibrium and also read and write answers to
questions about changes in Demand and Supply.
• Daily opener#9: Explain the concept of equilibrium
price.
• I. Notes#9
-Review Homework
-notes on price
• II. Homework#7
-Questions #7-10 on page 66 and Problems # 3-5.
Equilibrium Price and Quantity
• Equilibrium Quantity:
Where the supply and
demand curves
intersect is where the
quantity demanded
equals the quantity
supplied.
• Equilibrium Price: The
price where quantity
demanded equals
quantity supplied.
Surplus & Shortage
• Surplus – a situation in which the quantity
supplied is greater than the quantity demanded
at a given price.
• Shortage – a situation in which the quantity
demanded is greater than the quantity supplied
at a given price.
The Price Adjustment Process
Explaining and Predicting Prices
• Economists use market models to explain how
the world around us works and predict how
certain events such as changes in prices might
occur.
• A change in price is normally the result of a
change in supply, a change in demand, or
changes in both.
Changes in Supply
• When demand remains constant, and supply
increases, equilibrium price is lowered but
equilibrium quantity is increased.
• When demand remains constant, and supply
decreases, equilibrium price rises while
equilibrium quantity decreases.
Supply Increase/Demand Decrease
• Supply increases and demand decreases:
a. Equilibrium price will drop
b. Equilibrium quantity will increase if supply’s
increase is greater than demand’s decrease.
c. Equilibrium quantity will decrease if demand’s
decrease is greater than the increase in supply.
Supply Decrease/Demand Increase
• Supply decreases and demand increases:
a. Equilibrium price will rise
b. Equilibrium quantity will increase if supply’s
increase is greater than demand’s decrease.
c. Equilibrium quantity will decrease if demand’s
decrease is greater than the increase in supply.
Exit Question#9
• What did Mr. Clifford use as his example in the
demand video?
Homework Tonight
• Homework:
• Questions #7-10 on
page 66 and Problems
#3-5 on p.67.
Economics 9/30/16
http://mrmilewski.com
• OBJECTIVE: Examine Supply, Demand and Market
Equilibrium. AP Macro-I.D
•
Language objective: SWBAT define essential vocabulary on Price Ceilings and Price
Floors, write notes on both and also read and write answers to questions about
changes in Demand and Supply.
• Daily opener: Complete the Quiz in Figure 3.6 on page 57.
(Don’t look at the answers until you have answered the
questions.)
• I. Journal#10
-Review Homework
-notes on distorting market outcomes
• II. Homework
-Work on Homework#8 – on Google Classroom
• NOTICE: Chapter#3 Test Wednesday Oct 5th
Supply Increase/Demand Decrease
• Supply increases and
demand decreases:
a. Equilibrium price will drop
b. Equilibrium quantity is
indeterminate. Equilibrium
quantity will increase if
supply’s increase is greater
than demand’s decrease.
Equilibrium quantity will
decrease if demand’s
decrease is greater than the
increase in supply.
Supply Decrease/Demand Increase
• Supply decreases and
demand increases:
a. Equilibrium price will
rise
b. Equilibrium quantity is
indeterminate.
Equilibrium quantity
will decrease if supply’s
decrease is larger than
demand’s increase.
Equilibrium quantity
will increase if
demand’s increase is
greater than the
decrease in supply.
Supply Increase/Demand Increase
• Supply increases and
demand increases:
a. Equilibrium price is
indeterminate.
Equilibrium price will
fall if the increase in
supply is greater than
the increase in
demand. Equilibrium
price will rise if the
increase in demand is
greater than the
increase in supply.
b. Equilibrium quantity
will increase if both
supply and demand
increase.
Supply Decrease/Demand Decrease
• Supply decreases and
demand decreases:
a. Equilibrium price is
indeterminate. Equilibrium
price will rise if the decrease
in supply is greater than the
decrease in demand.
Equilibrium price will fall if
the decrease in demand is
greater than the decrease in
supply.
b. Equilibrium quantity will fall
if both supply and demand
decreases.
Economic goals
• The seven broad economic and social goals we
examined in Chapter #2 often conflict with
each other. This is why the government has
been playing a larger role in the economy than
someone like Adam Smith would have liked.
• One way the government tries to achieve
equity and security is by setting prices at
“socially desirable” levels.
• What does “socially desirable” mean?
Distorting Market Outcomes
• Price ceiling – a maximum legal price that can
be charged for a product.
• Price ceilings can be found in places like NYC
who put rent controls on housing in an
attempt to make it affordable.
• Price floor – the lowest legal price that can be
paid for a good or service.
• Minimum wage – the lowest legal wage that
can be paid to most workers is an example of
a price floor.
Rent control
• For example, without rent controls the
equilibrium price for housing in NYC might be
$900 per month. At this price, suppliers would be
willing to provide 2 million units of housing.
• REMINDERS:
Law of Demand – as price drops quantity demanded increases.
Law of Supply – as price drops quantity supplied decreases.
• If NYC were to put a price ceiling of $600 per
month on rent, what would happen to quantity
demanded? What about quantity supplied?
Rent control in NYC
Federal Minimum Wage
Exit question#10
• 10.) What does indeterminate mean? Explain
how it applies to equilibrium.
Homework Tonight
• Work on study guide for
test on Wednesday,
10/5.