A Market in Crude Oil Let’s Play a Game!

Each of you will be either a BUYER SELLER

Keep track of your progress for each transaction. Gain/Loss Keep track of your progress for each transaction. Record the price on your card each time you get one (A) After you make a sale/purchase, record that price (B) At the end of each round, calculate the gain or loss for each transaction. Sellers make a gain when they sell for more than the price on their Sell Card. Buyers gain when they pay less than the price on their Buy Card.

Reaching the Market Clearing Price through Supply & Demand Market Equilibrium Reaching the Market Clearing Price through Supply & Demand

What is Equilibrium? Price where the quantity supplied and the quantity demanded are equal On the graph: where the curves intersect AKA: the Market Clearing Price

The Role of Prices Prices act as signals to buyers and sellers

Role of Prices Prices send signals and provide incentives to buyers and sellers. signal to producers about what to produce Signal to consumers about how much to buy

Role of Prices When supply and demand changes, market prices adjust, affecting incentives. Buyers and Sellers respond in predictable ways to a change in prices Higher prices induce extra production while they discourage consumption. Prices are the motivator in a market economy while competition is the regulator, keeping prices in equilibrium.

EQUILIBRIUM Market condition that exists when quantity demanded is equal to quantity supplied. Markets always move toward this. Think of it as the market’s “happy place”

SHORTAGE Market condition that exists when quantity demanded is greater than quantity supplied. Think of it as the market’s “Unhappy place”

SURPLUS Market condition that exists when quantity SUPPLIED is greater than quantity demanded. Think of it as the market’s “Unhappy place”

Let’s Graph It! How to find equilibrium on a curve

MARKET EQUILIBRIUM The market equilibrium price is: Quantity Demanded is Quantity Supplied is Quantity P R I C E S D 10 15 20 5 25 150 200 250 100 50 Supply & Demand of T-Shirts $15 150 150 If someone set a price of $5 for T-shirts: Quantity Demanded: ______ Quantity Supplied: ______ This would result in a (surplus / shortage) of t-shirts. If someone set a price of $20 for T-shirts: Quantity Demanded: _____ Quantity Supplied: _____ This would result in a (surplus / shortage) of t-shirts. 250 100 50 200

Let’s Try A Few! Turn the page over and complete the problems. REMEMBER: Look at the market and its relationship to the scenario to determine if Supply or Demand is affected.

Let’s Practice! What Happens in the Market?

1. The price of snow skis increases by 10%. Ski Boots Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: D1

2. A high protein diet fad sweeps the nation. Hamburger Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: D1

3. New technologies are introduced in the gadget-manufacturing process. Gadgets Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: S1

4. The U.S. government imposes a quota to protect the domestic steel industry. American Made Cars S1 Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity:

5. The price of DVD players drops. VHS Tapes Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: D1

6. Petroleum refineries are put out of commission due to a hurricane. Gasoline S1 Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity:

7. The government increases the amount of corn subsidy paid to farmers. Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: S1

8. Consumers expect the price of gasoline to increase tomorrow. Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: D1

9. Coffee prices increase by 50%. Tea Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: D1

10. The government increases income taxes by 10%. iPads Quantity Price S D Demand:  –  Supply: Equilibrium Price: Equilibrium Quantity: D1

INTERDEPENDENCY How do changes in supply and demand in one market effect other markets?

Shifts in Supply and Demand B C A B D C

SUPPLY AND DEMAND FOR CONNECTICUT APPLES Connecticut ships its apples to all parts of the country by rail A hurricane destroys the apple crops in Connecticut before they are picked How would this effect each of the commodities below?

S1 Supply of apples was lost in Connecticut and not as many were shipped to Boston D1 Washington farmers would want more land to grow more apples since apples were destroyed in Connecticut = more profit for them

D1 People would want apples from Washington since they can’t get them from Connecticut D1 People would want more pears (since it is a substitute for apples)

S1 Less apples to buy means less apple pies in the market (need apples to make the pies)

INTERDEPENDENCY Let’s Practice More!

D1 S1 D1 D1

S1 D1 D1 D1

S1 D1 D1 D1

D1 D1 D1 D1

S1 D1 D1 D1

S1 S1 D1 D1

Let’s see what you have learned about supply, demand and equilibrium. Let’s Take a QUIZ! Let’s see what you have learned about supply, demand and equilibrium.

1. Assume that a new fertilizer dramatically increases the number of potatoes that can be harvested with no additional labor or machinery. Also assume that this fertilizer does not affect wheat farming and that people are satisfied to eat either potatoes or bread made from wheat flour. S1 D1 D1 D1

2. Assume people’s tastes change in favor of colored sports shirts, which are worn without neckties, and against white dress shirts, which are worn with neckties and tie clasps. D1 D1 D1 D1

3. Assume people’s tastes change and there is an increase in the demand for briefcases and luggage made of leather. S1 D1 D1 D1

Your Main Title Your Sub Points

Printable Page Your Text Here

Supply and Demand for Jellybeans Price of sugar increases. Price of bubblegum, a close substitute for jellybeans, increases. A machine is invented that makes jelly beans at a lower cost. Government places a tax on foreign jelly beans, which have a considerable share of the market. Widespread prosperity allows people to buy more jelly beans.

MARKET: sugar produced in the U. S. NEWS EVENT: MARKET: sugar produced in the U.S. NEWS EVENT: The government reduces the amount of sugar that US companies may import. As a result, sugar consumers, such as candy companies, will have to buy more sugar from US sugar producers. Demand Supply Equilibrium Price Equilibrium Quantity Quantity Price S D D1

MARKET: candy   NEWS EVENT: Because of a federal sugar policy designed to protect U.S. sugar producers, the price of sugar increases. S1 Demand Supply Equilibrium Price Equilibrium Quantity Quantity Price S D

MARKET: corn NEWS EVENT:   NEWS EVENT: Because of a federal policy supporting sugar prices, soft-drink bottlers switch to using more high-fructose corn syrup as a substitute for sugar. Demand Supply Equilibrium Price Equilibrium Quantity Quantity Price S D D1

MARKET: sugar market in Caribbean countries NEWS EVENT:   NEWS EVENT: Because of decreased U.S. sugar quotas, sugar producers in Caribbean countries begin to reduce sugar production. S1 Demand Supply Equilibrium Price Equilibrium Quantity Quantity Price S D

Market Equilibrium