Download Demand and Supply Review PPT

DEMAND AND SUPPLY
Revisited
Along with elasticity, shifters, equilibrium &
disequilibrium
THE LAW OF DEMAND
Quantity
demanded
price
0
30
5
25
10
20
15
15
20
10
25
5
30
0
P
QD
AS THE PRICE FOR A GOOD OR SERVICE
INCREASES, THE QUANTITY DEMANDED
DECREASES EXAMPLE CANDY AUCTION



All of the Prices paired with the Quantities
Demanded = Demand
Price can only indicate a change in the quantity
demanded– It cannot change Demand
Only Six (6)things can change Demand
▲ Income, ▲Population, ▲Tastes & Preferences
 ▲Consumer Expectations, ▲Price of Substitutes
 ▲Price of Complements

CHANGE IN DEMAND
What could change
this graph?

How sensitive to a change in price is
the change in the quantity
demanded?
ELASTICITY OF DEMAND: WHAT MAKES THE
SLOPE OF THE LINE CHANGE?
Elastic
 Inelastic

THE LAW OF SUPPLY
Quantity
Supplied
price
0
0
5
5
10
10
15
15
20
20
25
25
30
30
P
QS
AS THE PRICE FOR A GOOD OR SERVICE
INCREASES, THE QUANTITY SUPPLIED ALSO
INCREASES P
Q



All of the Prices paired with the Quantities
Supplied = Supply
Price can only indicate a change in the quantity
supplied– It cannot change Supply
Only Six (6) things can change Supply
▲ Cost of Inputs, ▲# of Producers,
 ▲Producer Expectations, ▲Technology
 ▲Government Policy, ▲Natural Events/Disasters

HOW DO YOU KNOW WHEN THE PRICE IS
RIGHT?

Equilibrium QD & QS Intersect at the Same
Price 
. Equilibrium point
PRICE CONTROLS =GOVERNMENT
INVOLVEMENT
• Price Floor = price set above Equilibrium
Surplus
Shortage
Price Ceiling = Price set below Equilibrium