Download Demand

Price
P
Quantity Demanded
Qd
$9
8
2
3
5
9
7
6
Price
P
Quantity Demanded
Qd
$9
8
2
3
5
9
7
6
P
9
8
7
6
To be on the
demand curve
a person must
be WILLING
and ABLE to
purchase the
product or service. 2 3
Qd
just a point on the
curve.
D
is the entire
curve.
5
9
Q
Price
P
Quantity Demanded
Qd
$9
8
2
3
5
9
7
6
There is an
inverse
___________
relationship
between price
and quantity.
P
9
8
7
6
Qd
just a point on the
curve.
D
is the entire
curve.
2 3
5
9
Q
9
8
7
6
Definitions:
D
2 3
5
9
Q
Quantity demanded--it is the amount that will be
purchased at a specific P.
Demand--it is a schedule of quantities of goods and
services that will be purchased at various prices
at a specified time, all other things held constant.
9
8
7
6
Qd
just a point on the
curve.
D
is the entire
curve.
2 3
5
9
Q
Price changes Quantity Demanded
Price DOES NOT CHANGE
DEMAND!!!!!!!!
Only one variable
Qd
PRICE
PRICE DOES NOT
DEMAND!!
GUESS HOW MANY
DETERMINANTS OF
DEMAND THERE ARE?
8
And if you don’t memorize these variables, YOU
WILL FAIL THIS CLASS!!
ARE THERE ANY QUESTIONS?
Eight Determinants of Demand:
1. # of consumers
6
$36.95
Eight Determinants of Demand:
1. # of consumers
2. Income--Normal Goods
As people’s incomes go up demand for
normal goods increases. As people’s income
go down, demand for normal goods
decrease.
3. Income--Inferior Goods
As people’s incomes go up demand for
inferior goods decreases. As people’s income
go down, demand for inferior goods
increases.
______Used Furniture Store
______Lazy Boy Store
$25
Eight Determinants of Demand:
1. # of consumers
2. Income--Normal Goods
3. Income--Inferior Goods
4. Preferences
Eight Determinants of Demand:
1. # of consumers
2. Income--Normal Goods
3. Income--Inferior Goods
4. Preferences
5. Price of related products: Substitutes
Eight Determinants of Demand:
1. # of consumers
2. Income--Normal Goods
3. Income--Inferior Goods
4. Preferences
5. Price of related products: Substitutes
6. Price of related products: Complements
Eight variables that shift Demand:
1. # of consumers
2. Income--Normal Goods
3. Income--Inferior Goods
4.
5.
6.
7.
8.
Preferences
Price of related products: Substitutes
Price of related products: Complements
Expected future P’s by consumers
Expected future Y by consumers
The price of airline tickets doubles, what
happens to the market for bus tickets?
P
S
P1
P
D1
D
Q
Q1
Your market is: Bus Tickets
Q
Increase in
price of
related
product—
Substitute
Price
P
Quantity Supplied
Qs
$6
7
2
3
5
9
8
9
P
S is the entire
curve.
Qs
Definitions:
just a point on the
curve.
Q
Quantity supplied--it is the amount that will be
sold at a specific P.
Supply--it is a schedule of quantities of goods and
services that will be sold at various prices
at a specified time, all other things held constant.
P
S is the entire
curve.
Qs
just a point on the
curve.
Q
Price changes Quantity Supplied
Price DOES NOT CHANGE
SUPPLY!!!!!!!!
Only one variable
Qs
PRICE
PRICE DOES NOT
SUPPLY!!
GUESS HOW MANY
DETERMINANTS OF
SUPPLY THERE ARE?
5
And if you don’t memorize these variables, YOU
WILL FAIL THIS CLASS!!
ARE THERE ANY QUESTIONS?
Five determinants of Supply:
1. # of suppliers
2. Costs
3. Physical Availability of Resources
4. Technology
5. Expected Future Prices by Suppliers
P
How did the terms
P’s and Q’s come
about?
Q
In English pubs, ale is ordered by pints and
quarts.
So in old England, when customers got
unruly, the bartender would yell at them
mind their own pints and quarts and settle
down. It's where we get the phrase "mind
your P's and Q's"
There are four steps in figuring out supply
and demand graphs:
1. DON’T THINK!
2. Which curve is affected and why?
3. Is it an increase or a decrease?
4. JUST DRAW IT!
What happens to the market for oranges when
there is a frost that hits Florida?
S1
P
S
Decrease in
the physical
availability
of resources.
P1
P
D
Q1 Q
Your market is:
Oranges
Q
What happens to the market for downloaded music
when the price of an MP3 player or Ipod goes down?
P
S
Decrease in
the price of
a complement.
P1
P
D1
D
Q
Your market is:
Q1
Q
Downloaded Music
What happens to the market for downloaded
music when the royalties paid to the song
artist goes
up?
S1
P
S
Increase in
costs.
P1
P
D
Q1 Q
Your market is:
Q
Downloaded Music
The U.S. goes through a boom economy, what
happens to the market for steak?
P
S
Increase in
incomes—
Normal goods.
P1
P
D1
D
Q
Your market is: Steak
Q1
Q
The price of milk doubles; what happens to
the market for cereal?
P
S
Price of
related
product—
complement.
P
P1
D1
Q1
Q
Your market is: Cereal
D
Q
U.S. automakers use robots to produce its
cars, what happens to the market for
foreign automobiles?
P
S
Price of
related
product—
substitute.
P
P1
D1
Q1
Q
Your market is: Foreign autos
D
Q
The price of airline tickets doubles, what
happens to the market for bus tickets?
P
S
P1
P
D1
D
Q
Q1
Your market is: Bus Tickets
Q
Increase in
price of
related
product—
Substitute
You can MAKE MONEY by knowing
the laws of supply and demand.
Major Drought
Hits Brazil
You can SAVE MONEY by knowing
the laws of supply and demand.
You can tell what
PEOPLE ARE SAYING
when you know the laws of
supply and demand.
Lee Iacocca
2 students arrested in disturbance at UA game:
1 man Tasered; Zona Zoo seats were oversold
(Arizona Daily Star, Sep. 9--Two University of
Arizona students were arrested and one was Tasered
after being turned away from Saturday night's home
football game because UA oversold the student
section. An officer was assaulted, police said.
The UA sold 11,000 passes for 10,000 seats, a
common practice, UA officials said.
UA
willshould
meet with
athletics
U ofpolice
A police
meetthe
with
Reff’sdepartment
ECON 200to
determine
what needs
to “needs”
be done to
to be
prevent
class to determine
what
done this
to
from
happening
the future,in
Mejia
said.
prevent
this frominhappening
the future.
P
S
P
$95
D
10,000
11,000
Q
Apple Inc. learned last week how harsh
upset customers can be when it lowered
the price of its $599 iPhone by $200,
angering the loyal fans who paid full
price when the trendy product was
launched in June.
P
$599
$399
D
1 million
Q
Q
Job losses push U.S. closer to recession;
first drop in four years
Published: Saturday, September 08, 2007
P
S
P
P1
D
D1
Q1 Q
G&S
Q
Faculty at U of A
Questions for Supply and Demand
Homework Exercise
Skip Questions 5 and 6.
Assume that the economy of the
country of Alpha is experiencing
increasing unemployment. Steak is
considered a normal good in Alpha.
Using the supply and demand graph
illustrate the impact of the increasing
unemployment on the market for steak
in Alpha.
Assume that the economy of the
country of Alpha is experiencing
increasing unemployment. Hamburger
is considered an inferior good in
Alpha. Using the supply and demand
graph illustrate the impact of the
increasing unemployment on the
market for hamburger in Alpha.
The country of Alpha experiences an
increase in immigration that leads to an
additional one million consumers.
What will be the affect on this
immigration on Grog the popular drink
of Alpha. Illustrate the impact on price
and output using a supply and demand
graph.
A plague has a devastating impact on
the population of Alpha. Illustrate
using a supply and demand graph how
this will impact the market for chicken.
Area of consumer
surplus
$15
$14
$13
$12
$11
$10
$9
S
$8 P
$4
$7
$6
$5
Area of producer
surplus
$3
$2
D
$1
Q
8
P
S
$1,600
Pc are set
BELOW the
equilibrium
price.
P
D
Q
Q
Pc is the
highest price
that can be
charged in the
market.
Fair market price of apartments in NYC is $1,600
NYC has rent controls which are price ceilings. Where do you think price
CEILINGS are set? BELOW or ABOVE the market price?
P
S
$1,600
P
Pc
$1,200
D
Q
Q
Rent controls are a price set by the government to
keep prices of apartments down. In NYC the
government sets the HIGHEST PRICE that can be
charged for a one-bedroom apartments at $1,200.
Landlords cannot charge above this price.
P
S
$1,600
P
$1,200
Anytime
Qd > Qs
there is a
SHORTAGE
in the
market.
Pc
D
Qs
QQ
<
Qd
Q
Looking at the graph, what occurs when the price is
set BELOW the equilibrium price when a PRICE
CEILING is set?
The Quantity Demanded > the Quantity Supplied
This is the number
of apartments landlords
are willing to supply at
this price (Qs).
This is the number of
people willing to
rent apartments at
this price (Qd).
S
P
$1,600
P
Pc
$1,200
D
Qs
<QQ Qd
This is a SHORTAGE.
Q
P
S
$1,600
P
Pc
$1,200
D
Qs
<QQ Qd
Q
_________ is looking for an apartment in NYC.
PRICE CEILING—THE HIGHEST PRICE THE
SELLER CAN SELL THE
PRODUCT.
P
$1,600
S
P
Pc
$1,200
D
Qs
<QQ Qd
Q
To fly from Chicago to
Minneapolis it cost
In 1975
Minneapolis
San
Fran.
$169
Chicago
$69
Los Angeles
To fly from Los Angeles
to San Francisco it cost
WHY?
In 1975
This is INTERSTATE
travel.
Minneapolis
San This is INTRASTATE
Fran. travel. (inside the state)
$169
Chicago
$69
Los Angeles
Roughly the same number of people were flying
between these two destinations and roughly the same number
of airplanes were flying these two routes. So why such a
difference in the prices of these airfares? What is different
between these two routes?
P
S
Pf
P
D
Q
Q
Interstate travel was regulated by the Civil
Aeronautics Board. It set the prices for flights
traveling across state lines. It set a PRICE FLOOR.
Where is a PRICE FLOOR set? Above or BELOW
the equilibrium price?
ABOVE.
P
S
Pf
P
D
Q
Q
Why is it called a price FLOOR if it is set ABOVE
the equilibrium/market price?
Because it is the LOWEST price that can be charged
by law.
S
P
$169
$69
Pf
P
$169
D
$69
Q
Q
Which route is the market price and which route
is the PRICE FLOOR?
The market price is $69, the price charged between
Los Angeles and San Francisco.
The PRICE FLOOR is $169, the price charged
between Chicago and Minneapolis.
$169
$69
S
P
Whenever there is
a PRICE FLOOR
the Quantity
Supplied is
greater than the
Quantity Demanded.
$169
$69
Pf
P
D
Qd
Q
<
Qs
Q
$169
Qd of
seats
$69
<
Qs of
seats
S
P
$169
A price floor
causes a
SURPLUS
in the market.
$69
Pf
P
D
Qd
Q
<
Qs
Q
$169
$69
Pf
P
D
Qd
Q
<
Qs
Q
What price did the airlines charge customer flying
from Chicago to Minneapolis?
$169
If airlines couldn’t compete by price since they
all charged the same price, how did airlines compete?
Service:
Best food, bigger seats, prettiest flight
attendants.
http://www.1jetsettravel.com/Picts/22Plncbn.jpg
Surplus of seats
available because
of the price floor.
http://www.transport-pf.or.jp/english/sky/airplane/exploration/img/jal-mesi.jpg
Airlines competed by
serving better food.
Prettiest stewardess
As deregulation of the airline industry took
place in 1978, what happened to the price
floor?
S
P
$169
$69
Pf
P
D
Qd
Q
Qs
Q
As deregulation of the airline industry took
place in 1978, what happened to the price
floor?
S
P
$169
Pf
$69 P
D
Qd
Q Qs
Q
The price floor is eliminated, lowering the price to the market price. This
gets rid of the surplus. People get to fly for lower prices, but the airplanes
are now more crowded.
The government of Alpha imposes a
per-unit tax on Brureff soda. Given
that Brureff has a relatively elastic
demand, illustrate the impact of this
tax on price and quantity using a
supply and demand graph.
The government of Alpha imposes a
per-unit tax on Brureff soda. Given
that Brureff soda has a perfectly
inelastic demand, illustrate the impact
of this tax on price and quantity using
a supply and demand graph.
Coffee and cream are complementary
goods. An unexpected period of bad
weather adversely affects the coffee
bean crop. Use a supply and demand
graph to illustrate the affect of this
bad weather on the price and quantity
of coffee.
Coffee and cream are complementary
goods. An unexpected period of bad
weather adversely affects the coffee
bean crop. Use a supply and demand
graph to illustrate the affect of this
bad weather on the price and quantity
of cream.
The two favorite juice drinks in the Alpha
economy are reffberry and fruitbru.
Consumers enjoy both drinks but some
have a slight preference for reffberry while
others have a slight preference for
fruitbru. The makers of reffberry have
invested in new technology that increases
their productivity. This technology is not
yet adaptable for the production of
fruitbru. Use a supply and demand graph
to illustrate the impact of the new
technology on the reffberry market.
The two favorite juice drinks in the Alpha
economy are reffberry and fruitbru. Consumers
enjoy both drinks but some have a slight
preference for reffberry while others have a
slight preference for fruitbru. The makers of
reffberry have invested in new technology that
increases their productivity. This technology is
not yet adaptable for the production of fruitbru.
Use a supply and demand graph to illustrate the
impact of the new technology on the fruitbru
market.
Gasoline powered autos and electric
powered autos are substitute goods
and have relatively elastic demands.
Assume that the price of gasoline
increases by 30 percent. Use a supply
and demand graph to illustrate the
impact of this increase in the price of
gasoline on the market for gasoline
powered autos.
Gasoline powered autos and electric
powered autos are substitute goods
and have relatively elastic demands.
Assume that the price of gasoline
increases by 30 percent. Use a supply
and demand graph to illustrate the
impact of this increase in the price of
gasoline on the market for electric
powered autos.
A major news source reports an
outbreak of salmonella affects the
peanut butter snacks industry. Use a
supply and demand graph to illustrate
the immediate impact on price and
quantity of this news
In the past, the cost of Private University is
$45,000 per year and the cost of State
University is $17,000 per year. Both universities
have a fixed number of seats available for the
coming school year. Both schools have excellent
academic reputations. A major recession
occurs. Assume that both universities have
tuition costs that are influenced by the number
of applications they receive. Use a supply and
demand graph to illustrate the impact of the
recession on price and quantity for Private
University.
In the past, the cost of Private University is
$45,000 per year and the cost of State
University is $17,000 per year. Both universities
have a fixed number of seats available for the
coming school year. Both schools have excellent
academic reputations. A major recession
occurs. Assume that both universities have
tuition costs that are influenced by the number
of applications they receive. Use a supply and
demand graph to illustrate the impact of the
recession on price and quantity for State
University.
The domestic steel industry of Alpha
competes with imported steel from
the country of Tucumcari. Assume
that the government of Tucumcari
increases subsidies to its steel
industry. Use a supply and demand
graph to illustrate the impact of the
subsidies on steel made in Tucumcari.
The domestic steel industry competes
with imported steel from the country
of Tucumcari. Assume that the
government of Tucumcari increases
subsidies to its steel industry. Use a
supply and demand graph to illustrate
the impact of the subsidies on the
price and quantity of steel made in
Alpha.
The domestic steel industry competes
with imported steel from the country
of Tucumcari. Assume that the
government of Tucumcari increases
subsidies to its steel industry. Use a
supply and demand graph to illustrate
the impact of the subsidies on the
wage and quantity of workers in the
market for steel workers in Alpha.
The pork industry is dominated by
large corporate farms that pollute the
underground water table with waste
material from the slaughter of pigs.
The farms ignore this pollution. Use a
supply and demand analysis to
illustrate the impact of this avoidance
on the pork industry.
Assume that the favorite dating
activity of teenagers is going out to
dinner. The second favorite dating
activity of teenagers is going out for
ice cream. Assume that because of a
recession there will be far fewer jobs
available for teenagers this summer.
Use a supply and demand graph to
illustrate the impact of fewer jobs on
the price and quantity of the typical
dinner meal at a restaurant.
21. Use a supply and demand graph to
illustrate the effects on price and
quantity of milk from the
following simultaneous events:
A. The government provides
additional money for college
scholarships directly to high school
seniors.
Masons take a 25% cut in pay
P
S
S
Quantity
will definitely
increase.
P1
P1
P
D1
D
Q
Increase in demand
Increase in supply
Q1 Q1 Q
Price is
Indeterminate
It will either
go up.
P
S
P1
S
Quantity
will definitely
increase.
D1
Price is
Indeterminate
P
P1
D
Q
Increase in demand
Increase in supply
Q1
Q1
It stayed the
same.
P
S
Quantity
S will definitely
increase.
P1
P
P1
D1
D
Q
Increase in demand
Increase in supply
Q1
Q1
Price is
Indeterminate
It went down.
What happens to the price and quantity if there
is an increase in demand and a decrease in supply?
Price definitely goes up; Quantity is indeterminate
What happens to the price and quantity if there
is a decrease in demand and an increase in supply?
Price definitely goes down; Quantity is indeterminate
What happens to the price and quantity if there
is a decrease in demand and an decrease in supply?
Price is indeterminate; Quantity will definitely decrease