1 Sect. 2 - Supply and Demand Module 5 - Intro & Demand What you will learn: What a competitive market is and how it is described by the supply and demand model What the demand curve is The difference between movements along the demand curve and changes in demand The factors that shift the demand curve

2 Sect. 2 - Supply and Demand Module 5 - Intro & Demand Law of Demand - The lower the price of a good, the higher the quantity demanded - the higher the price, the lower the quantity demanded Law of Demand

3 Sect. 2 - Supply and Demand Module 5 - Intro & Demand Law of Demand - The lower the price of a good, the higher the quantity demanded - the higher the price, the lower the quantity demanded Demand Schedule - A table showing how much of a good or service consumers are willing to buy at different prices

4 Price $ 8 3 $ 7 5 $ 6 7 $ 5 10 $ 4 12 $ 3 16 $ 2 22

5 Sect. 2 - Supply and Demand Module 5 - Intro & Demand Law of Demand - The lower the price of a good, the higher the quantity demanded - the higher the price, the lower the quantity demanded Demand Schedule - A table showing how much of a good or service consumers are willing to buy at different prices Demand Curve - A graph that represents the demand schedule - shows the law of demand for a given good or service

7 Sect. 2 - Supply and Demand Module 5 - Intro & Demand Law of Demand - The lower the price of a good, the higher the quantity demanded - the higher the price, the lower the quantity demanded Demand Schedule - A table showing how much of a good or service consumers are willing to buy at different prices Demand Curve - A graph that represents the demand schedule - shows the law of demand for a given good or service

8 Shifts of the Demand Curve - A change in the demand at all prices - Increase in demand - shifts demand curve to the right - Decrease in demand - shifts demand curve to the left * Different than a move along the demand curve due to change in price

11 Shifts of the Demand Curve - A change in the demand at all prices - Increase in demand - shifts demand curve to the right - Decrease in demand - shifts demand curve to the left * Different than a move along the demand curve due to change in price Demand Curve Shift

12 Shifts of the Demand Curve - A change in the demand at all prices - Increase in demand - shifts demand curve to the right - Decrease in demand - shifts demand curve to the left * Different than a move along the demand curve due to change in price Causes of Shift in Demand curve: 1) Change in price of related good - Substitutes - Goods that are used in place of another good - as the price of a good increases consumers buy less of it - so the demand for its substitute increases

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0 Quantity Price $ A B 4 Decrease in Quantity Demanded for Butter Quantity Price $ Increase in Demand for Margarine 0

15 Shifts of the Demand Curve - A change in the demand at all prices - Increase in demand - shifts demand curve to the right - Decrease in demand - shifts demand curve to the left * Different than a move along the demand curve due to change in price Causes of Shift in Demand curve: 1) Change in price of related good - Substitutes - Goods that are used in place of another good - as the price of a good increases consumers buy less of it - so the demand for its substitute increases

16 Compliments - Two goods that are bought and used together - as the price of a good increases consumers buy less of it - so the demand for its compliment also decreases

0 Quantity Price $ A B 4 Decrease in Quantity Demanded for Hotdogs Quantity Price $ Decrease in Demand for Buns 0

18 Quick Check: If the price of a good increases, the demand for a substitute good will _____________? If the price of a good decreases, the demand for a compliment good will _____________? increase

19 2) Change in Income - A rise in consumer incomes will cause the demand for most goods to increase (shift right) Normal Goods - Goods who’s demand increases when incomes increase Inferior Goods - Goods who’s demand decreases when incomes increase

22 2) Change in Income - A rise in consumer incomes will cause the demand for most goods to increase (shift right) Normal Goods - Goods who’s demand increases when incomes increase Inferior Goods - Goods who’s demand decreases when incomes increase

23 Quick Check: If your income increases, your demand for inferior goods will _____________? If your income decreases, your demand for normal goods will _____________? decrease

24 2) Change in Income - A rise in consumer incomes will cause the demand for most goods to increase (shift right) Normal Goods - Goods who’s demand increases when incomes increase Inferior Goods - Goods who’s demand decreases when incomes increase 3) Change in Tastes - Fads and marketing

0 Quantity Price $ Demand Curve for Fad Items

0 Quantity Price $ Demand Curve for Fad Items

2) Change in Income - A rise in consumer incomes will cause the demand for most goods to increase (shift right) Normal Goods - Goods who’s demand increases when incomes increase Inferior Goods - Goods who’s demand decreases when incomes increase 3) Change in Tastes - Fads and marketing

4) Change in Expectations - Expectations about the future affect our demand for goods Ex: Hurricane is coming: - Home Depot sells out of plywood and generators 5) Change in Number of Consumers - As population grows, total demand will increase even if individual demand remains unchanged Change in Demand Curve

Module 6 - Supply and Equilibrium What you will learn: What the supply curve is The difference between movements along the supply curve and changes in supply The factors that shift the supply curve How supply and demand curves determine a market's equilibrium price and equilibrium quantity In the case of a shortage or surplus, how price moves the market back to equilibrium

32 Module 6 - Supply and Equilibrium Law of Supply - Producers offer more of a good as its price increases and less as its price falls Supply Schedule - A table showing how much of a good or service producers are willing to supply at different prices Supply Curve - A graph that represents the law of supply for a good or service

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34 Module 6 - Supply and Equilibrium Law of Supply - Producers offer more of a good as its price increases and less as its price falls Supply Schedule - A table showing how much of a good or service producers are willing to supply at different prices Supply Curve - A graph that represents the law of supply for a good or service Supply Curve

Shifts in the Supply Curve - A change in the quantity supplied at all prices * Different than a move along the supply curve due to change in price

Shifts in the Supply Curve - A change in the quantity supplied at all prices * Different than a move along the supply curve due to change in price 1) Change in input prices - A rise in the cost of inputs will cause a fall in supply (shift left) because the good is more expensive to produce - a fall in the cost of inputs will cause an increase in supply (shift right) 2) Change in Prices of Related Goods - A producer of multiple goods will increase or decrease production of one good as the price of another good changes

3) Technology - Advances in technology can lower production costs - causes a rightward shift in the supply curve 4) Change in Expectation - Anticipated future price increase will reduce supply today - Anticipated future price decrease will increase supply today 5) Change in Number of Producers - As with demand, increase in number of producers will increase total supply of a good or service

Equilibrium Price - The point at which the demand for a good is equal to supply - also known as the Market Clearing Price This is also the point of the Equilibrium Quantity

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Equilibrium Price - The point at which the demand for a good is equal to supply - also known as the Market Clearing Price This is also the point of the Equilibrium Quantity Equilibrium

Equilibrium Price - The point at which the demand for a good is equal to supply - also known as the Market Clearing Price This is also the point of the Equilibrium Quantity Surplus - When quantity supplied is greater than quantity demanded - solved by lowering price and decreasing production

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Equilibrium Price - The point at which the demand for a good is equal to supply - also known as the Market Clearing Price This is also the point of the Equilibrium Quantity Surplus - When quantity supplied is greater than quantity demanded - solved by lowering price and decreasing production Shortage - When quantity demanded is greater than quantity supplied - solved by raising price and increasing production

Equilibrium Price - The point at which the demand for a good is equal to supply - also known as the Market Clearing Price This is also the point of the Equilibrium Quantity Surplus - When quantity supplied is greater than quantity demanded - solved by lowering price and decreasing production Shortage - When quantity demanded is greater than quantity supplied - solved by raising price and increasing production * Markets always move toward equilibrium Surplus / Shortage

Module 7 - Change in Equilibrium What you will learn: How equilibrium price and quantity are affected when there is a change in either supply or dem and How equilibrium price and quantity are affected when there is a simultaneous change in both supply and demand

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Increase in Demand - Shift in demand curve to the right - Leads to a shortage / new higher equilibrium price

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Increase in Demand - Shift in demand curve to the right - Leads to a shortage / new higher equilibrium price Decrease in Demand - Shift in demand curve to the left - Leads to a surplus / new lower equilibrium price

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Increase in Demand - Shift in demand curve to the right - Leads to a shortage / new higher equilibrium price Decrease in Demand - Shift in demand curve to the left - Leads to a surplus / new lower equilibrium price

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Decrease in Supply - Shift in supply curve to the left - Leads to a shortage / new higher equilibrium price

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Decrease in Supply - Shift in supply curve to the left - Leads to a shortage / new higher equilibrium price Increase in Supply - Shift in supply curve to the right - Leads to a surplus / new lower equilibrium price Supply Curve Shift

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Simultaneous Shifts of Demand & Supply Curves - When both demand & supply increase - equilibrium quantity rises - equilibrium price rises or falls

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Simultaneous Shifts of Demand & Supply Curves - When both demand & supply increase - equilibrium quantity rises - equilibrium price rises or falls When both demand & supply decrease - equilibrium quantity falls - equilibrium price rises or falls

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Simultaneous Shifts of Demand & Supply Curves - When both demand & supply increase - equilibrium quantity rises - equilibrium price rises or falls When both demand & supply decrease - equilibrium quantity falls - equilibrium price rises or falls When demand increases and supply decreases - equilibrium price rises - equilibrium quantity rises or falls

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Simultaneous Shifts of Demand & Supply Curves - When both demand & supply increase - equilibrium quantity rises - equilibrium price rises or falls When both demand & supply decrease - equilibrium quantity falls - equilibrium price rises or falls When demand increases and supply decreases - equilibrium price rises - equilibrium quantity rises or falls When demand decreases and supply increases - equilibrium price falls - equilibrium quantity rises or falls

Module 7 - Change in Equilibrium Demand & Supply Curve Shifts - Simultaneous Shifts of Demand & Supply Curves - When both demand & supply increase - equilibrium quantity rises - equilibrium price rises or falls When both demand & supply decrease - equilibrium quantity falls - equilibrium price rises or falls When demand increases and supply decreases - equilibrium price rises - equilibrium quantity rises or falls When demand decreases and supply increases - equilibrium price falls - equilibrium quantity rises or falls

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand 3) Increase in supply 4) Decrease in supply 5) Both demand & supply increase 6) Both demand & supply decrease 7) Demand increases and supply decreases 8) Demand decreases and supply increases

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand 3) Increase in supply

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand 3) Increase in supply 4) Decrease in supply

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand 3) Increase in supply 4) Decrease in supply 5) Both demand & supply increase

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand 3) Increase in supply 4) Decrease in supply 5) Both demand & supply increase 6) Both demand & supply decrease

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand 3) Increase in supply 4) Decrease in supply 5) Both demand & supply increase 6) Both demand & supply decrease 7) Demand increases and supply decreases

Draw and label graphs for each including demand & supply curves, shift arrows, equilibrium points, and if price and quantity increase, decrease or indeterminate. 1) Increase in demand 2) Decrease in demand 3) Increase in supply 4) Decrease in supply 5) Both demand & supply increase 6) Both demand & supply decrease 7) Demand increases and supply decreases 8) Demand decreases and supply increases

Module 8 - Price Controls What you will learn: The meaning of price controls How price controls can create problems and make a market inefficient Who benefits and who loses from price controls, and why they are used

Module 8 - Price Controls Price Ceilings - Maximum price that can legally be charged for a good or service - Government imposed price control What is the effect?

Module 8 - Price Controls Price Ceilings - Maximum price that can legally be charged for a good or service - Government imposed price control Creates a Shortage!

Module 8 - Price Controls Price Ceilings - Maximum price that can legally be charged for a good or service - Government imposed price control Black Market - When producers and consumers conduct business outside of Govt. regulations - Illegal - throws the system out of balance Price Floors - Minimum price that must be paid for a good or service What is the Effect?

Module 8 - Price Controls Price Ceilings - Maximum price that can legally be charged for a good or service - Government imposed price control Black Market - When producers and consumers conduct business outside of Govt. regulations - Illegal - throws the system out of balance Price Floors - Minimum price that must be paid for a good or service Creates a Surplus?

Minimum Wage - Minimum price that an employer can pay a worker for one hour of labor - set by federal government - Price floor on wages What is the Effect?

0 Quantity of Workers Wage $ $6.00 $ Demand for Labor Supply of Labor Minimum Wage

Minimum Wage - Minimum price that an employer can pay a worker for one hour of labor - set by federal government - Price floor on wages Surplus of Labor! Minimum Wage

Module 9 - Quantity Controls What you will learn: The meaning of quantity controls How quantity controls create problems and can make a market inefficient Who benefits and who loses from quantity controls

Module 9 - Quantity Controls Quantity controls / Quota - A limit on the quantity of a good that can be bought or sold - Government imposed quantity control What is the Effect?

Module 9 - Quantity Controls Quantity controls / Quota - A limit on the quantity of a good that can be bought or sold - Government imposed quantity control

Module 9 - Quantity Controls Quantity controls / Quota - A limit on the quantity of a good that can be bought or sold - Government imposed quantity control Wedge - The difference between the demand price & supply price of a good with imposed quota - known as Quota Rent Deadweight Loss - The lost gains due to quantity controls - in the “Taxi” scenario it is the lost rides the riders woud like & the lost income the drivers miss out on

103 The End