Shifts in Supply and Demand Today’s LEQ: How do markets operate? (continued from yesterday)

First, Let’s Review Demand… Demand = the total amount consumers are willing and able to buy at all prices. Demand Curve = the graphical representation of what consumers are willing and able to buy.

Law of Demand: As price increases (decreases), quantity demanded decreases (increases). P Q P Q

Next, Let’s Review Supply… Supply = the total amount of a good or service producers are able to make at all prices Supply curve = the graphical representation of a good or service producers are able to make at all prices.

Law of Supply: as price increases (decreases) quantity supplied increases (decreases) P Q P Q

Equilibrium Point: the point at which the quantity & the price are equal

Shifts in Supply and Demand Some factors cause supply and demand to shift Represented by the movement of the entire curve Changes in QS or QD are represented by movement along the corresponding curve

Assuming Perfect Competition… Five factors must be present: Unlimited number of buyers and sellers Standardized product Free entry and exit Perfect knowledge of price Perfect economic decisions (people act in their own best self-interest)

Factors that cause demand to change or shift Tastes and fads Income Number of buyers Future price expectations Price and availability of: Substitutes (i.e. Coke and Pepsi) Compliments (i.e. peanut butter and jelly)

Factors that cause a change in supply: Price of land, labor or capital Technology Number of other sellers Price of other goods I could produce Tax policy

IRDL the Turtle  “IRDL” will help you! INCREASE = RIGHT DECREASE = LEFT