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Demand Shift or Supply Shift? P P S S S’ Po Po P1 P1 D Qo Q1 Q D Q1 Qo Q Lectures in Microeconomics-Charles W. Upton The Market for Illegal Drugs • When drug prices are low, law enforcement gets blamed. Demand Shift or Supply Shift The Market for Illegal Drugs • When drug prices are low, law enforcement gets blamed. • Lax enforcement means that supply increases, meaning lower prices. Demand Shift or Supply Shift Supply and Demand • When drug prices are low, law enforcement gets blamed. • Lax enforcement means that supply increases, meaning lower prices. P S Po Demand Shift or Supply Shift D Qo Q The Consequence of Lax Enforcement • When drug prices are low, law enforcement gets Po blamed. P1 • Lax enforcement means that supply increases, meaning lower prices. P Demand Shift or Supply Shift S S’ D Qo Q1 Q The Supply Shift • When drug prices Lower criminal are low, law penalties meangets a enforcement Po lower cost of blamed. P1 doing business, • Lax enforcement hence greater means that supply supply increases, meaning lower prices. P Demand Shift or Supply Shift S S’ D Qo Q1 Q Lower Prices • When drug prices Thatlow, means are law a lower price. gets P enforcement o blamed. P1 • Lax enforcement means that supply increases, meaning lower prices. P Demand Shift or Supply Shift S S’ D Qo Q1 Q Greater Quantity • When drug prices Not mention aretolow, law a higher quantity.gets P enforcement o blamed. P1 • Lax enforcement means that supply increases, meaning lower prices. P Demand Shift or Supply Shift S S’ D Qo Q1 Q The Market for Illegal Drugs •Once Whenagain, drug prices the arepolice low, law are enforcement gets Po spending too blamed. much time eating P 1 • Laxdonuts! enforcement means that supply increases, meaning lower prices. P Demand Shift or Supply Shift S S’ D Qo Q1 Q Not So Fast • An economist would object to this rapid conclusion. Demand Shift or Supply Shift An Alternative Explanation • An economist would object to this rapid conclusion. • The decline in prices could also be due to a demand shift. Demand Shift or Supply Shift The Market for Illegal Drugs • An economist would object to this rapid Po conclusion. • The decline in prices could also be due to a demand shift. P Demand Shift or Supply Shift S D Qo Q The Market for Illegal Drugs • An economist would object to this rapid Po conclusion. P1 • The decline in prices could also be due to a demand shift. P S D Q1 Demand Shift or Supply Shift Qo Q The Market for Illegal Drugs • An economist would object to Drug this rapid Po Education conclusion. P1 causes the curve in • demand The decline to shift could to the also prices leftto a be due demand shift. P S D Q1 Demand Shift or Supply Shift Qo Q The Market for Illegal Drugs • An economist would object to Prices this rapid Decline Po conclusion. P1 • The decline in prices could also be due to a demand shift. P S D Q1 Demand Shift or Supply Shift Qo Q The Market for Illegal Drugs • An economist would object to And Quantity thisFalls rapid Po conclusion. P1 • The decline in prices could also be due to a demand shift. P S D Q1 Demand Shift or Supply Shift Qo Q Two Explanations P P S S S’ Po Po P1 P1 D Qo Q1 Q1 Qo Q Demand Shift or Supply Shift D Q Two Explanations P Po P S Demand is Down S S’ Po P1 P1 D Qo Q1 Q1 Qo Q Demand Shift or Supply Shift D Q Two Explanations P P S S’ Po Po S Supply is Up P1 P1 D Qo Q1 Q1 Qo Q Demand Shift or Supply Shift D Q If the Supply Story is Right P P S S’ Po Po P1 P1 S Price down, Quantity Up D Qo Q1 Q1 Qo Q Demand Shift or Supply Shift D Q If the Demand Story is Right P Po P1 P S Price down, Quantity Down S’ Po P1 D Qo Q1 S Q1 Qo Q Demand Shift or Supply Shift D Q What is Going On Change in Change in Quantity Price S Cause Down Down Demand Down Down Up Supply Down Up Up Down Up Supply Up Demand Up Demand Shift or Supply Shift D What is Going On Change in Change in Quantity Price S Cause Down Down Demand Down Down Up Supply Down Up Up Down Up Supply Up Demand Up Demand Shift or Supply Shift D What is Going On Change in Change in Quantity Price S Cause Down Down Demand Down Down Up Supply Down Up Up Down Up Supply Up Demand Up Demand Shift or Supply Shift D What is Going On Change in Change in Quantity Price S Cause Down Down Demand Down Down Up Supply Down Up Up Down Up Supply Up Demand Up Demand Shift or Supply Shift D What is Going On Change in Change in Quantity Price S Cause Down Down Demand Down Down Up Supply Down Up Up Down Up Supply Up Demand Up Demand Shift or Supply Shift D The Moral of The Story Change in Change in Quantity Price Down Down Cause Demand Down Life is supply and demand, but Down Up Supply Down don’t think about one without Up Down Supply Up thinking about the other. Up Up Demand Up Demand Shift or Supply Shift Adding Up Demand Curves -A Bonus Demand Shift or Supply Shift Adding up demand functions P • Suppose we have the demand Po functions for North Dakota and South Dakota. DND Demand Shift or Supply Shift DSD Q Adding up demand functions P • Suppose we have the demand functions for North Po Dakota and South Dakota. • To get the combined demand functions, add them up horizontally. Demand Shift or Supply Shift DND DSD D Q Adding up demand functions P • Suppose we have the demand functions for North Po Dakota and South Dakota. • To get the combined demand functions, add them up horizontally. DND DSD ND Q SD Q Q o Shift o o Demand Shift or Supply D Q End ©2004 Charles W. Upton Demand Shift or Supply Shift
