Download Quantity of Ice-Cream Cones

Demand you Da-man
DEMAND-Always refers to the
buyer/consumer of a product.
• Supply and Demand Song
Money Can’t buy me love
• Link
Lyrics
•
Can't buy me love, love
Can't buy me love
I'll buy you a diamond ring my friend if it makes you feel alright
I'll get you anything my friend if it makes you feel alright
'Cause I don't care too much for money, money can't buy me love
I'll give you all I got to give if you say you love me too
I may not have a lot to give but what I got I'll give to you
I don't care too much for money, money can't buy me love
Can't buy me love, everybody tells me so
Can't buy me love, no no no, no
Say you don't need no diamond ring and I'll be satisfied
Tell me that you want the kind of thing that money just can't buy
I don't care too much for money, money can't buy me love
• Does money have any intrinsic value? What are
the functions of money? How does demand for
money affect its supply? How do you think the
supply of money versus the supply of diamonds
has changed since the since the Beatles wrote this
song? What's the reason for the difference?
Although money can’t buy love, money can buy a
diamond ring. How does the money supply change
today if you pay for the diamond ring with credit
as opposed to a debit card?
Supply and Demand
• Song
•
My boss he's a probable bore.
Put me hands and knees on scrubable floor.
Do it right receive the lions share bliss.
Know all too well just where that ration is.
Learned a lot about the company doe.
Learned less about receiving it though.
Saw how it came to those who always sat pretty.
Don't need it.
Supply and demand.
My girl had a probable cause or so she said and took a probable pause.
I was dumped for occupying her time.
I asked her why and what was next in line.
She said "Shiny hair that's my life ambition
but I'll devote my time to a new omission the rizzle-razzle kitsch of paranoid city".
Don't need it.
Supply and demand.
Supply and demand.
• Draw a supply and demand diagram that
shows the boss receiving “the lions share
bliss” while someone who scrubs floors gets
much less. In other words, what factors
would affect supply and demand such that
CEO’s receive 300 times the compensation
of average workers? Are CEO’s paid too
much?
Price
Demand Curve always looks like
this. You can look at it as going
down. What do you notice about
the relationship between price and
quantity?
D1
Quantity
THE LAW OF DEMAND
(Memorize this)
AS PRICES GO UP PEOPLES DEMAND FOR PRODUCT
GOES DOWN
AS PRICES GO DOWN PEOPLES DEMAND FOR
PRODUCT GOES UP.
The Demand Curve: The
Relationship between Price and
Quantity Demanded
• Demand Schedule
– The demand schedule is a table that shows the
relationship between the price of the good and
the quantity demanded.
DEMAND SCHEDULE
Price
Quantity
10
1
9
2
8
3
7
4
6
5
Catherine’s Demand Schedule
© 2007 Thomson South-Western
The Demand Curve: The Relationship
between Price and Quantity Demanded
• Demand Curve
• The demand curve is a graph of the relationship
between the price of a good and the quantity
demanded.
© 2007 Thomson South-Western
Figure 1 Catherine’s Demand Schedule and Demand Curve
Price of
Ice-Cream Cone
$3.00
2.50
1. A decrease
in price ...
2.00
1.50
1.00
0.50
0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity
of cones demanded.
© 2007 Thomson South-Western
Shifts in the Demand Curve
• Change in Quantity Demanded
• Movement along the demand curve.
• Caused by a change in the price of the product.
© 2007 Thomson South-Western
Changes in Quantity Demanded
Price of IceCream
Cones
B
$2.00
A tax on sellers of icecream cones raises the
price of ice-cream
cones and results in a
movement along the
demand curve.
A
1.00
D
0
4
8
Quantity of Ice-Cream Cones
© 2007 Thomson South-Western
A PRICE CHANGE ALSO
KNOWN AS A MOVEMENT ON
THE CURVE OR LIKE DAY
LIKES TO SAY A DOT TO DOT
Price
QD
5
Notice the price is
going down so what
happens to the
quantity demanded
4
D1
10
20
Quantity
Price can also go up. What happens
to Quantity Demanded?
Price
QD
5
Notice the price is
going up so what
happens to the
quantity demanded
4
D1
7
25
Quantity
DOT TO DOTS
• PRICE CHANGES ARE ALWAYS
MOVEMENTS ON THE CURVE.
• EXAMPLE SOMETHING GOES ON
SALE!!!!
• ARROW GOES UP OR DOWN BASED ON
WHAT THE PRICE IS DOING!!!!!
Price
QD
D1
Quantity
Price
QD
D1
Important Note- This is
what the graph looks like
only if the PRICE of the
product has
changed!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!
Quantity
Price
QD
PRICE
CHANGE!!!!!!!!!!!!!
!!!!!!!!!
D1
Quantity
So you have learned what a price
change looks like now lets look at
something else.
• Shifts in Demand!!!!!!!!!!!!!!!!!! These are
when people want to buy or not buy a
product for any other reason besides the
price changing!!!!!!!!!!!!!
ANY OTHER REASON
Price Change
Price
QD
D1
Change in Demand
D
P
r
i
c
e
d2
d1
Quantity
Price
Quantity
QD
D1
Quantity
P
r
i
c
e
D
d1
d2
QD Vs Change in D
• To help reveal the difference, I draw a graph
relating the time that a student spends preparing
for an exam to his expected grade. It shows that,
generally speaking, as a student studies more, he
makes a better grade, i.e., one moves along the
curve. Now, I ask the students what would happen
if they somehow came into possession of a copy
of the exam. They respond, naturally, that they
would probably be able to make a higher grade
than before given the same amount of study time.
In other words, the function shifts.
Shifts in the Demand Curve
• Change in Demand
• A shift in the demand curve, either to the left or
right.
• Caused by any change that alters the quantity
demanded at every price.
© 2007 Thomson South-Western
This product more people want
to buy but not because the price
went down. Look at the price
Notice the price
and Quantities
stayed the same
D
Price
5
d2
d1
6
10
Quantity
When the curve shifts it is called a
Change in Demand.
• There are certain things that will make the
demand curve shift. These are called the
determinants of demand.
P
r
i
c
e
D
d1
Quantity
P
r
i
d2 c
e
D
d1
d2
Quantity
Shifts in the Demand Curve
– Consumer income
– Prices of related goods/complimentary and
substitute goods.
– Tastes
– Expectations
– Number of buyers
Expectations
•
College students are often a poor down-trodden lot who must pinch pennies to get by
and often subsist for most of their college careers on oatmeal or macaroni and cheese.
They have to walk around in old rags. (Playing up the poverty of students gets
sympathetic attention!) They endure this extreme deprivation until the last semester of
their senior year. Then they start to apply for jobs and go to interviews. You can easily
tell who is doing well in the job search process, they are the students who go out for
pizza and beer and who begin to sport flashy new clothes! You can also distinguish
between majors, accounting and computer science majors with high expectations will go
out for pizza frequently, philosophy majors perhaps once or twice! Why does this occur?
It is because good interviews give students confidence that in a few months their era of
poverty will draw to a close. It is not necessary to even receive their first paycheck for
these students to begin to alter their consumption patterns. Most have some slight
reserve of cash, and the mere expectation of fat checks in a few months is enough to
loose the bands on their coffers. Those without any nest egg may be inclined to borrow a
bit, knowing that repayment will be easy. Budding accountants and systems analysts
can, of course, be more prodigal since the size of the paycheck they anticipate is
substantially fatter than that expected by the average philosophy major. Expectations of
the future are a broad and powerful demand shifter not limited to expectations of future
prices of a specific good.
6 shifts-Determinants of Demand
you must memorize this!!!
• CT=CONSUMER TASTE- What people THINK
• CI-CONSUMER INCOME- How much money people
have
• SUBSTITUTE GOOD-SG- Good that is bought instead of
another good-example COKE AND PEPSI
• COMPLIMENTARY GOOD-CG- Goods that are bought
together like PB AND JELLY
• # BUYERS-#B-The number of potential customers. More
people = more demand and vice versa
• EXPECTATIONS-E-Anticipation of something happening.
Figure 3 Shifts in the Demand Curve
Price of
Ice-Cream
Cone
Increase
in demand
Decrease
in demand
Demand
curve, D2
Demand
curve, D1
Demand curve, D3
0
Quantity of
Ice-Cream Cones
© 2007 Thomson South-Western
Market Demand versus Individual Demand
• Market demand refers to the sum of all
individual demands for a particular good or
service.
• Graphically, individual demand curves are
summed horizontally to obtain the market
demand curve.
© 2007 Thomson South-Western
The Market Demand Curve
When the price is $2.00,
When
themarket
price is $2.00,
The
demand
curve is the
Nicholas
will demand 3
Catherine will demand
4
of thecones.
individual
demand
ice-cream
cones. curves!
ice-cream
Catherine’s Demand
Price of IceCream Cone
+
Nicholas’s Demand
Price of IceCream Cone
2.00
2.00
1.00
1.00
4
8
Quantity of Ice-Cream Cones
The market demand at
horizontal
sum
$2.00 will be 7 ice-cream
=
cones.
Market Demand
Price of IceCream Cone
2.00
1.00
3
5
Quantity of Ice-Cream Cones
When the price is $1.00, When the price is $1.00,
Catherine will demand 8 Nicholas will demand 5
ice-cream cones.
ice-cream cones.
7
13
Quantity of Ice-Cream Cones
The market demand at
$1.00, will be 13 icecream cones.
© 2007 Thomson South-Western
Shifts in the Demand Curve
• Consumer Income
• As income increases the demand for a normal good
will increase.
• As income increases the demand for an inferior
good will decrease.
© 2007 Thomson South-Western
Consumer Income Normal Good
Price of IceCream Cone
$3.00
An increase
in income...
2.50
Increase
in demand
2.00
1.50
1.00
0.50
D1
0 1
2 3 4 5 6 7 8 9 10 11 12
D2
Quantity of
Ice-Cream
Cones
© 2007 Thomson South-Western
Consumer Income Inferior Good
Price of IceCream Cone
$3.00
2.50
An increase
in income...
2.00
Decrease
in demand
1.50
1.00
0.50
D2
0 1
D1
2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones
© 2007 Thomson South-Western
Shifts in the Demand Curve
• Prices of Related Goods
• When a fall in the price of one good reduces the
demand for another good, the two goods are called
substitutes.
• When a fall in the price of one good increases the
demand for another good, the two goods are called
complements.
© 2007 Thomson South-Western
Table 1 Variables That Influence Buyers
© 2007 Thomson South-Western
EXAMPLES-get a board
and marker
• COKE GOES OFF SALE!!!!
• COKE-STOCK MARKET CRASHES!!!! CAUSING A GREAT
DEPRESSION!!!
• COKE- PEPSI GOES OFF SALE
• COKE-CHIPS GO ON SALE
• COKE-CHINA GOES BANKRUPT AND ALL THE PEOPLE
IMMIGRATE TO THE UNITED STATES!!!!!!!!
• COKE-EXPECT THE PRICE OF COKE TO GO
DOWN!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
• COKE-GOES ON SALE GRAPH COKE AND PEPSI DON’T
Graph Coke is bad for you.
Price
D
d2
D1
Quantity
GRAPH COKE-PEPSI IS FOUND
TO BE BAD FOR YOU
D
D2
D1
LOTS OF NEW PEOPLE
IMMIGRATE TO UNITED STATES
D
D2
D1
PEPSI GOES ON SALE GRAPH
COKE AND PEPSI
P
P
QD
D
D1
D2
PEPSI
Q
COKE
Q
CHIPS RAISE THEIR PRICE
GRAPH COKE AND CHIPS
D1
D2
CHIPS
COKE
COKE CAUSES CANCER
P
D
D1
D2
Q
examples
• Coke goes off sale
• Coke- and pepsi go on sale graph both
• Coke-Lebron James advertises for coke
graph coke and Pepsi
• Coke- Govt cuts consumer taxes
Lets Move on to SUPPLY
• Supply is always looked at from the
manufacturer/seller/producer of a product.
The curve looks like it goes up!
Thus sUPply
Price
Quantity
SUPPLY
• Quantity supplied is the amount of a good that
sellers are willing and able to sell.
• Law of Supply
– The law of supply states that, other things equal,
the quantity supplied of a good rises when the
price of the good rises.
© 2007 Thomson South-Western
The Supply Curve: The Relationship
between Price and Quantity Supplied
• Supply Schedule
• The supply schedule is a table that shows the
relationship between the price of the good and the
quantity supplied.
© 2007 Thomson South-Western
Ben’s Supply Schedule
© 2007 Thomson South-Western
The Supply Curve: The Relationship
between Price and Quantity Supplied
• Supply Curve
• The supply curve is the graph of the relationship
between the price of a good and the quantity
supplied.
© 2007 Thomson South-Western
Figure 5 Ben’s Supply Schedule and Supply Curve
Price of
Ice-Cream
Cone
$3.00
1. An
increase
in price ...
2.50
2.00
1.50
1.00
0.50
0
1 2
3
4
5
6
7
8
9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity of cones supplied.
© 2007 Thomson South-Western
Market Supply versus Individual Supply
• Market supply refers to the sum of all
individual supplies for all sellers of a particular
good or service.
• Graphically, individual supply curves are
summed horizontally to obtain the market
supply curve.
© 2007 Thomson South-Western
Shifts in the Supply Curve
•
•
•
•
Input prices
Technology
Expectations
Number of sellers
© 2007 Thomson South-Western
5 SUPPLY SHIFTS
• PRODUCTION/TECHNOLOGY-PT-YOU HIRE BETTER
EDUCATED WORKERS/OR MACHINES TO RUN IN THE
FACTORY.
• COST OF INPUTS-COI-COSTS OF PRODUCTION-WAGESGAS-.
• EXPECTATIONS-IF THE COST OF ALUMINUM IS GOING
TO RISE• GOVERNMENT-POLLUTION• # OF SELLERS-THIS IS WHERE YOU LOOK AT IT FROM
A MACROECONOMIC STANDPOINT!!!
© 2007 Thomson South-Western
Shifts in the Supply Curve
• Change in Quantity Supplied
• Movement along the supply curve.
• Caused by a change in anything that alters the
quantity supplied at each price.
© 2007 Thomson South-Western
Change in Quantity Supplied
Price of IceCream
Cone
S
C
$3.00
A rise in the price
of ice cream
cones results in a
movement along
the supply curve.
A
1.00
0
1
5
Quantity of
Ice-Cream
Cones
© 2007 Thomson South-Western
Shifts in the Supply Curve
• Change in Supply
• A shift in the supply curve, either to the left or right.
• Caused by a change in a determinant other than
price.
© 2007 Thomson South-Western
Figure 7 Shifts in the Supply Curve
Price of
Ice-Cream
Cone
Supply curve, S3
Decrease
in supply
Supply
curve, S1
Supply
curve, S2
7
Increase
in supply
0
5
12
20 Quantity of
Ice-Cream Cones
© 2007 Thomson South-Western
Table 2: Variables That Influence Sellers
© 2007 Thomson South-Western
So Just like demand you have
different scenarios
Price Change or Shift in Supply
P
QS
P
S
S1
S2
P
QS
Q
P
S
Q
S2
S1
Q
SOFT DRINK INDUSTRY
COKE GOES OUT OF BUSINESS
S2
S1
S
6
8
15
AN EXAMPLE OF A Product going
on sale from producers standpoint.
P
QS
1.00
.50
25
100
Q
AN EXAMPLE OF A PRICE
CHANGE FOR SUPPLY
P
QS
1.00
.50
25
100
Q
• WE HIRE A BUNCH OF HIGH SCHOOL
DROP OUTS.
S2
S1
• GOVERNMENT TELLS COKE
POLLUTE THE RIVER WE DON’T
CARE.
Why would they produce more?
S1
S2
3
10
25
MORE EXAMPLES
• ALUMINUM PRICES GO UP(GRAPH
S2
COKE)
S1
MORE EXAMPLES
• MINIMUM WAGE GOES UP GRAPH
COKE!( GRAPH TWO OF THEM!!
• COKE LOWERS ITS PRICE GRAPH IT
FROM A SUPPLIER AND CONSUMER
STANDPOINT
• Coke raises its price-graph both
curves!!!!!please get it right!!!
COKE LOWERS PRICE SHOW
BOTH
COKE-ROBOTS BREAK IN OUR
FACTORY AND DESTROY STUFF
COKE-GAS PRICES CONTINUE
TO RISE
COKE-GOVERENMENTMINIMUM WAGE IS NOW 8
DOLLARS
s2
s1
COKE-COKE EXPECTS
ALUMINUM PRICES TO GO UP
s1
s2
GRAPH MINUTE MAID ORANGE
JUICE-FREEZE KILLS TREES!!!!
GRAPH OIL-THE PRICE OF OIL
GOES UP!!!!!!!!!!!!
QS
Get Board and Markers and get
started. I know you did it yesterday.
It is good practice.
• 1. Show 100 people wanting coke for 2 dollars.
• 2. Show coke producing 200 cokes for 3 dollars.
• 3. Show coke producing 300 cokes for 4 dollars and then
the price going up to 5 dollars and them producing 600.
• 4. Show 1000 people wanting ipods at 50 dollars and then
their price going up to 299 and 200 people wanting them.
• 5. Show 1000 people wanting ipods at 200 dollars and then
they are found to cause cancer so only 100 people want
them.
Get Board and Markers and get
started.
• 6. Show what happens to the Demand for Apples if they
are found to fight cancer.
• 7. Show what happens to the Demand for Gasoline if a
Hurricane is heading toward us.
• 8. Show what happens to the Production of a Chemical
Plant if the Govt cuts restriction on pollution.
• 9. Show what happens to the Demand for Coach Days
tutoring as the Test Approaches.
• 10. Show what happens to the Supply of Dogs if the price
of dogs goes up?
Get Board and Markers and get
started.
• 11.Show what happens to the Demand for Dogs f
the Price of Dog food quadruples?
• 12. The Ipad is a huge success! Graph the
consumers perspective.
• 13. Show what happens to the Demand for Cars if
the govt lowers the Legal driving Age.
• 14. Show what happens to the Demand for Beer if
the govt raises the legal drinking age.
• 15. Show what happens to the demand of diapers
if there is an influx of new immigrants.
• 16. Show what happens to the demand for Flashlights if a
hurricane is expected.
• 17. Graph the demand for Coke and Pepsi if coke goes on
Sale.
• 18. Graph the supply of Coke and Pepsi if they both raise
their prices.
• 19. Graph the Demand for Coke and Pepsi if they both
lower their prices.
• 20. What is the Law of demand.
• 21. Graph Orange Juice and Oranges. What happens to the
production if insects destroy most of the crop?
• 22. Graph Production of Tshirts if-cotton prices go up?
• 23. Graph Production of Tables and Chairs if Wood becomes more
expensive.
• 24. Graph consumption of Tables and Chairs if tables go on sale.
• 25. Graph consumption of Cliff notes towards the end of a semester?
• 26. Graph Production and Consumption of coke if it goes on sale.
• 27. Graph Demand for Guns if the president tries to restrict them?
• 28. Graph the production of Guns if the price goes up?
• 29. Graph consumption Tami-flu if the swine flu breaks out again.
•
•
•
•
•
30 What is the Law of Supply?
31. When do you use QS
32. When do you use just S
33. When do you use QD
34. when do you use D
• 35. List the 6 things the shift the demand
curve.
• 36. List the 5 things that shift the Supply
curve.
Practice
»
• Mexico
•
•
•
•
•
•
•
» Cars
Trucks
1000
2000
USA
300
300
37.AAC
38.AAT
39.CAC
40.CAT
41.What does it cost Mexico to make 1 truck?
42.Who imports Cars?
Practice
»
• Mexico
•
•
•
•
•
•
•
» Cars
Trucks
50hr
200hr
USA
50hr
500hr
43.AAC
44.AAT
45.CAC
46.CAT
47.What does it cost Mexico to make 1 truck?
48.Who imports Cars?
•
•
•
•
49. Graph Equilibrium
50. Graph a surplus.
51. Graph a shortage.
52. Graph Coke-Demand is 100 and supply
is 50?
• 53. Graph Coke-Demand is 100 and Supply
is 200.
1. Opportunity Cost of going from B to C?
2. Most Baseballs that can be made?
3. What about point D?
4. What do we know about points A, B, C?
5. Opportunity Cost of going from A to C?
6. What about Point D?
7. What is opportunity cost of going from B to F?
CAFÉ EQUILIBRIUM
• SUEPLY AND DEMAN FINNALY MEET
AT EQUILIBRIUM. HOW SWEET NOW
EVERYONE IS HAPPY.
• CONSUMERS HAVE ENOUGH
PRODUCTS AND SUPPLIERS HAVE
SOLD ALL THAT THEY HAVE MADE
SUPPLY AND DEMAND TOGETHER
• Equilibrium refers to a situation in which the
price has reached the level where quantity
supplied equals quantity demanded.
© 2007 Thomson South-Western
SUPPLY AND DEMAND TOGETHER
• Equilibrium Price
– The price that balances quantity supplied and
quantity demanded.
– On a graph, it is the price at which the supply and
demand curves intersect.
• Equilibrium Quantity
– The quantity supplied and the quantity demanded
at the equilibrium price.
– On a graph it is the quantity at which the supply
and demand curves intersect.
© 2007 Thomson South-Western
SUPPLY AND DEMAND TOGETHER
Demand Schedule
Supply Schedule
At $2.00, the quantity demanded
is equal to the quantity supplied!
© 2007 Thomson South-Western
Figure 8 The Equilibrium of Supply and Demand
Price of
Ice-Cream
Cone
Supply
Equilibrium
Equilibrium price
$2.00
Equilibrium
quantity
0
1
2
3
4
5
6
7
8
Demand
9 10 11 12 13
Quantity of Ice-Cream Cones
© 2007 Thomson South-Western
• Song link
© 2007 Thomson South-Western
•
I work all night, I work all day, to pay the bills I have to pay
Ain't it sad
And still there never seems to be a single penny left for me
That's too bad
In my dreams I have a plan
If I got me a wealthy man
I wouldn't have to work at all, I'd fool around and have a ball...
Money, money, money
Must be funny
In the rich man's world
Money, money, money
Always sunny
In the rich man's world
Aha-ahaaa
All the things I could do
If I had a little money
It's a rich man's world
A man like that is hard to find but I can't get him off my mind
Ain't it sad
And if he happens to be free I bet he wouldn't fancy me
That's too bad
So I must leave, I'll have to go
To Las Vegas or Monaco
And win a fortune in a game, my life will never be the same...
Money, money, money
Must be funny
In the rich man's world
Money, money, money
Always sunny
In the rich man's world
Aha-ahaaa
All the things I could do
If I had a little money
It's a rich man's world
Money, money, money
Must be funny
In the rich man's world
Money, money, money
Always sunny
In the rich man's world
Aha-ahaaa
All the things I could do
If I had a little money
It's a rich man's world
It's a rich man's world
© 2007 Thomson South-Western
• Draw a supply and demand diagram that
shows the boss receiving “the lions share
bliss” while someone who scrubs floors
gets much less. In other words, what
factors would affect supply and demand
such that CEO’s receive 300 times the
compensation of average workers? Are
CEO’s paid too much?
© 2007 Thomson South-Western
Equilibrium
• Surplus
• When price > equilibrium price, then quantity
supplied > quantity demanded.
• There is excess supply or a surplus.
• Suppliers will lower the price to increase sales, thereby
moving toward equilibrium.
© 2007 Thomson South-Western
Figure 9 Markets Not in Equilibrium
(a) Excess Supply
Price of
Ice-Cream
Cone
Supply
Surplus
$2.50
2.00
Demand
0
4
Quantity
demanded
7
10
Quantity
supplied
Quantity of
Ice-Cream
Cones
© 2007 Thomson South-Western
Equilibrium
• Shortage
• When price < equilibrium price, then quantity
demanded > the quantity supplied.
• There is excess demand or a shortage.
• Suppliers will raise the price due to too many buyers
chasing too few goods, thereby moving toward
equilibrium.
© 2007 Thomson South-Western
Figure 9 Markets Not in Equilibrium
(b) Excess Demand
Price of
Ice-Cream
Cone
Supply
$2.00
1.50
Shortage
Demand
0
4
Quantity
supplied
7
10
Quantity of
Quantity
Ice-Cream
demanded
Cones
© 2007 Thomson South-Western
Equilibrium
• Law of supply and demand
• The claim that the price of any good adjusts to bring
the quantity supplied and the quantity demanded for
that good into balance.
© 2007 Thomson South-Western
Table 3: Three Steps for Analyzing Changes in Equilibrium
© 2007 Thomson South-Western
Figure 10 How an Increase in Demand Affects the Equilibrium
Price of
Ice-Cream
Cone
1. Hot weather increases
the demand for ice cream . . .
Supply
New equilibrium
$2.50
2.00
2. . . . resulting
in a higher
price . . .
Initial
equilibrium
D
D
0
7
3. . . . and a higher
quantity sold.
10
Quantity of
Ice-Cream Cones
© 2007 Thomson South-Western
Three Steps to Analyzing Changes in
Equilibrium
• Shifts in Curves versus Movements along
Curves
• A shift in the supply curve is called a change in
supply.
• A movement along a fixed supply curve is called a
change in quantity supplied.
• A shift in the demand curve is called a change in
demand.
• A movement along a fixed demand curve is called a
change in quantity demanded.
© 2007 Thomson South-Western
Figure 11 How a Decrease in Supply Affects the Equilibrium
Price of
Ice-Cream
Cone
S2
1. An increase in the
price of sugar reduces
the supply of ice cream. . .
S1
New
equilibrium
$2.50
Initial equilibrium
2.00
2. . . . resulting
in a higher
price of ice
cream . . .
Demand
0
4
7
3. . . . and a lower
quantity sold.
Quantity of
Ice-Cream Cones
© 2007 Thomson South-Western
Table 4: What Happens to Price and Quantity When Supply
or Demand Shifts?
© 2007 Thomson South-Western
Summary
• Economists use the model of supply and
demand to analyze competitive markets.
• In a competitive market, there are many buyers
and sellers, each of whom has little or no
influence on the market price.
© 2007 Thomson South-Western
Summary
• The demand curve shows how the quantity of a
good depends upon the price.
– According to the law of demand, as the price of a good
falls, the quantity demanded rises. Therefore, the demand
curve slopes downward.
– In addition to price, other determinants of how much
consumers want to buy include income, the prices of
complements and substitutes, tastes, expectations, and the
number of buyers.
– If one of these factors changes, the demand curve shifts.
© 2007 Thomson South-Western
Summary
• The supply curve shows how the quantity of a
good supplied depends upon the price.
– According to the law of supply, as the price of a good rises,
the quantity supplied rises. Therefore, the supply curve
slopes upward.
– In addition to price, other determinants of how much
producers want to sell include input prices, technology,
expectations, and the number of sellers.
– If one of these factors changes, the supply curve shifts.
© 2007 Thomson South-Western
Summary
• Market equilibrium is determined by the
intersection of the supply and demand curves.
• At the equilibrium price, the quantity
demanded equals the quantity supplied.
• The behavior of buyers and sellers naturally
drives markets toward their equilibrium.
© 2007 Thomson South-Western
P
THE GRAPH TO COPY
S1
EP1 100
D1
EQ1 100
Q
P
LETS SPY ON THEM
S1
EQUILIBRIUM
EQUILIBRIUM
PRICE 100
D1
EQUILIBRIUM QUANTITY
100
Q
P
HYBRID CARS IF OIL PRICES
CONTINUE TO RISE!!!
S1
EP1 100
D2
D1
EQ1 100
Q
EP AND EQ WILL SUFFICE!!!!!!!
S1
P
EP1
D1
EQ1
Q
LETS PRACTICE COKE CAUSES
CANCER
S1
P
D
EP1
EP2
D2
EQ2
EQ1
D1
Q
P
ALUMINUM PRICES GO UP
GRAPH COKE S1
S2
EP2
EP
D1
EQ2
EQ
Q
COKE RAISES ITS PRICE
SURPLUS
OF COKE
P
S1
1.50
How many
Buyers? 50
EP1 1.00
IF COKE RAISES ITS
PRICE THEY WILL MAKE
MORE COKE BUT LESS
PEOPLE WILL BE BUYING
IT BECAUSE THE PRICE
WENT UP
How many
made? 150
D1
50
EQ1
150
Q
COKE LOWERS ITS PRICE
S1
How many
will be
made? 50
P
Therefore you
have a shortage
of coke!
EP1 1.00
How many
want to buy it?150
.50
D1
50
100
EQ
150
P
ORANGES FREEZE GRAPH
SUPPLY AND DEMAND!!!!
s2
S1
ep2
EP1 100
D1
eq2
EQ1 100
Q
Coke causes cancer
p
s
1.00
d
100
q
Coke causes cancer
p
s
D
1.00
ep2
d
d2
eq2 100
q
Gasoline- Hurricane Wipes out some
of the Gasoline Refineries
p
s
Ep
1.00
d
eq
100
q
GasolineHurricane Wipes out some of the
Gasoline Refineries
s2
p
s
ep2
Ep
s
1.00
d
eq2
eq
100
q
Gas-China has a billion People and
they are all starting to get cars
p
s
Ep
1.00
d
eq
100
q
Gas-China has a billion People and
they are all starting to get cars
p
s
Ep
D
1.00
d2
d1
eq
100
q
Gas-China has a billion People and
they are all starting to get cars. But
they keep the price the same
p
s
D
1.50
Ep
1.00
What
should the
price go
too? 1.50
d2
100 is made
IF price
is still
1.00are
how much is
and
500
wanted and how much is made?
needed
eq
100
So there
is a
d1 shortage
500 q
Supply and Demand Together
Forever
p
surplus
s
2.00
Ep
1.00
d
50w
eq
100
150m
q
Astros T shirts if they are in the
world series
p
s
Ep
D
20
d2
d1
eq
100
q
Gasoline!!!! When a hurricane starts
coming towards you!!!!
p
s
10
Ep
D
2.80
d2
d1
eq
100
q
500
Gasoline!!!! When a hurricane starts
coming towards you! But because of
no price gouging law prices must
p stay the same what will happen?
s
10
Ep
D
2.80
d2
d1
eq
100
500
q
Supply and Demand Together
Forever
p
s
Ep
1.00
d
eq
100
q
DIAMONDS
• WHAT IF I TOLD YOU THAT THERE
ARE JUST AS MANY DIAMONDS IN
THE WORLD AS EMERALDS. How
could you explain why diamonds are more
expensive. Graph it!!!!
AP Packet Questions
• LOD-21B,33B,25C
• SD-5,17,20,33,34,45,47,50,
12A,2B,48B,20A,5B,41C
• INFERIOR NORMAL GOOD21A,4B,4C,,40C
• SD BOTH MOVE4A,32A,3B,28C
10 E-B, C
P
S1
S2
PEACHES NEW
TECHNOLOGY
EP1 100
D1
EQ1 100
Q
NECTARINES
P
S1
EP1 100
D2
EQ1 100
D1
Q
MORE EXAMPLES
ORANGES-WE HIRE A BUNCH
OFP LAZY WORKERS SHOW EPS
S1
AND EQS
EP1 100
D1
EQ1 100
Q
ORANGE GROWERS GET REALLY MAD AND FEEL
UNDERAPPRECIATED AND DECIDE TO RAISE THEIR
P
PRICES
S1
150
EP1 100
D1
50
EQ1 100 150
Q
AFTER A REVOLT AT HEB THE ORANGE GROWERS DECIDE
THEIR PRICES ARE TO HIGH AND DECIDE TO LOWER THEM
P
S1
EP1 100
D1
50
EQ1 100
150
Q
ORANGES-APPLES GO ON SALE
GRAPH ORANGES
P
S1
EP1 100
D1
EQ1 100
Q
ORANGES-APPLES GO ON SALE
BUT THEY DON’T CHANGE THE
P
PRICE
S1
EP1 100
D2
50
EQ1 100
D1
Q
ORANGES-WE GET BETTER
EQUIPMENT TO PICK ORANGES
P
WITH
S1
EP1 100
D1
EQ1 100
Q
THE GRAPH TO COPY
P
S1
EP1 100
D1
EQ1 100
Q
AP Packet Questions
• LOD-21B,33B,25C
• SD-5,17,20,33,34,45,47,50,
12A,2B,48B,20A,5B,41C
• INFERIOR NORMAL GOOD21A,4B,4C,,40C
• SD BOTH MOVE4A,32A,3B,28C