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Economics – Chapter 4 Part 1 Everyone knows that when we teach econ, we teach supply & demand. P why? S D Q because of what it tells us Let’s say you have access to the following resources... 348 N. Arizona Ave would you produce why? 3 of 20 or Or let’s say you live here .... and you have access to these resources.... would you choose to produce or why? Let’s say Michael wants to buy this car. What price does he want to pay? Leandra is selling the car. What price does she want to charge? Your father of economics has something to tell you. “If he charges too much for his wares, or if he refuses to pay as much as everybody else for his workers, he will find himself without buyers in the one case, and without workers in the other.” 6 of 40 So how do we determine the price? Buyers and Sellers interact to determine the price. Michael would like to pay lowest possible price. the _________ Why can’t he? Because he has to compete against all these other buyers ... 8 of 20 Leandra would like to highest charge the _________ possible price. Why can’t she? Buyers competing against each up other drive the price ________. Sellers competing against each down other drive the price ________. Price Supply Equilibrium Price Demand Quantity At equilibrium .... able Every buyer willing and ________ to pay the price got the goods & services he desired. Every seller able to produce at all that price was able to sell _______ she wished. There nor are neither .... surpluses too many = ___________ too few = ___________ shortages Price Supply Equilibrium Price Demand At equilibrium .... Quantity Did every buyer who wanted one get one? Did every seller who wanted to produce, produce one? 12 of 20 …enjoy 3 different pools… Your 20 & 18-year-old cousins are calling and inviting you on a 3-day weekend beach vacation to Rocky Point. Hear the ocean waves… …water sports… …photo in a big sombrero sitting on a donkey. Your parents are fine with you going since it’s with family. Weather will be great. Price includes the cost of the room in your uncle’s condo, free water sports, gas money & two meals a day eating uncle’s food. Copy this chart onto your paper. How many of you would be willing to go on this 3-day weekend if the price were….. Price $200 $150 $75 $50 $25 Number of New Travelers Quantity Demanded Now plot the data on this graph on your paper. Price $200 Beach Vacations $150 $100 $75 $50 $25 5 10 15 20 25 Quantity Beach Vacations Price $200 $150 Note that the demand curve downward sloping. is _______________ $100 17 of 40 $75 $50 $25 D 5 10 15 20 25 Quantity Beach Vacations Price $200 To be on the demand curve a willing person must be ___________ able and _________to purchase the product or service. $150 $100 Qd Note that quantity demanded is just a point on the curve. $75 $50 D $25 5 10 15 20 is the entire curve. 25 Quantity Price Beach Vacations $200 $150 $100 Qd So if you are told there was a change in price of beach vacations, this would be along movement _________ the curve. $75 $50 D $25 5 10 15 20 25 Quantity Quantity demanded rises as price falls, & quantity demanded falls as price rises, other things constant. This would be illustrated by along movement _________the demand curve. However, there are 8 variables price other than _________ that will shift demand. P Pepsi S P1 P D1 D Q Q1 Q P at $9 people $9 would 8 demand 7 4 rather 6 _____ 2 than _____ What happens if P changes from $7 to $8? at $7 people would D1 demand 8 rather _____ 5 than _____ D 2 3 5 9 this is a Q shift in demand Quantity Demanded The ___________ ___________ changes, not demand ____________. But you can shift demand....meaning that Let’s say Laura started a lanyard business b/c all the students at her school had to wear id’s. She generally priced them around $4.00 each. 23 of 40 What can shift demand? Let’s say that with all the new homes, there are 100 additional students (consumers) at CHS. What will happen to demand for Laura’s lanyards at the same prices? hold off on note-taking P S P1 P D1 AFTER shifting demand, then tell us, what happens to P & Q? D Q Q1 Q This is why supply & demand are important. The curves themselves don’t matter – it’s intersect where they ____________. P Their intersection is equilibrium called ______________ and it tells us the market-clearing price & __________ quantity __________ at which all products will be bought & sold. So from this graph when D shifted P ____ & Q ____ S P1 P D1 D Q Q1 Q What can shift demand? Harkins opens 2 new theaters in Chandler and employs even more CHS students at a higher wage of $7.30/hour. What happens to demand? P S P1 P D1 What happens to P & Q? P & Q D Q Q1 Q What can shift demand? Laura has been selling for $4.00 and decides to raise the price to $6.00. What happens to demand? P S P1 Demand does NOT shift. P does not shift demand. P is movement along the demand curve. P D Q1 Q Q What can shift demand? Laura wouldn’t let the 3 most popular cheerleaders copy her math homework. Now they refuse to wear the lanyards and make fun of people wearing them. What happens to demand? P S P P1 What happens to P & Q? D1 P & Q Q1 Q D Q What can shift demand? Laura has been selling lots of lanyards that the market-clearing price of $4.00. Then the CHS administration decided to permit students to wear their ID’s on clips as well as lanyards. Business-minded Ben started selling metal clips at $1.00 each during lunch. What happens to the demand for Laura’s lanyards? P S P P1 What happens to P & Q? P & Q D1 Q1 Q D Q Lots of students like to also buy plastic pockets for $1.50 from the book store to hold their ID’s to wear along with Laura’s lanyards. Suddenly Laura saw the price of her lanyards drop from $4 to $2. What happens to the demand for plastic pockets? What can shift demand? Plastic Pockets P S P1 P D1 What happens to P & Q of plastic pockets? P & Q D 30 of 40 Q Q1 Q What The CHS administration feels guilty for making students wear their ID’s and the high cost P involved. So the Administration decides to subsidize P1 the cost of lanyards P and gives students $1.00 to help them pay for each lanyard. What happens to demand? What happens to P & Q? P & Q can shift demand? S D1 D Q Q1 Q What can shift demand? A lot of gossipy students got wind of Laura’s plans to drop her price in half starting next week since it’s near the end of the school year. What happens to the demand for Laura’s lanyards this week? P S P P1 What happens to P & Q? P & Q D1 Q1 Q D Q Variables that Shift Demand: resume note-taking S Subsidies / Taxes N Number of consumers I Normal Goods Income (Y) Inferior Goods Preferences / Tastes P E R future P by consumers Expected future Y by consumers Related products price of Complements price of Substitutes I Normal Goods Income Inferior Goods Income--Normal Goods As consumers’ income (Y) goes up demand for normal goods increases. As consumers’ Y goes down, demand for normal goods decreases. Income--Inferior Goods As consumers’ income goes up demand for inferior goods decreases. As consumers’ Y goes down, demand for inferior goods increases. Make sure you can correctly draw the graphs illustrating a shift in demand. lanyards P P S lanyards S P1 P P D1 P1 D Q Q1 Q D1 Q1 Q D Q Note the elements of an acceptable IB / AP graph: y axis labeled P title of graph High-Definition TV’s S dotted line to show where point is on y & x axis P P1 D1 Q1 Q D Q x axis labeled Note the elements of an acceptable IB / AP graph: P High-Definition TV’s S equilibrium P & Q labeled P shifts in curves noted with arrows & new color ink P1 D1 Q1 Q D Q 37 of 40 Note the elements of an acceptable IB / AP graph: P High-Definition TV’s S P P1 new numbers for P & Q labeled P1 & Q1 D1 Q1 Q D Q changes in P & Q noted with arrows & new color In English pubs, ale is ordered by pints and quarts. So in old England, when customers got unruly, the bartender would yell at them to mind their own pints and quarts and settle down. It's where we get the phrase . . . “Mind your P's and Q's." classwork activity AP workbook p. 19 & 20 10 min 40 of 40