Mehdi Arzandeh, University of Manitoba PowerPoint Presentation by Mehdi Arzandeh, University of Manitoba

© 2016 McGraw‐Hill Education Limited Demand, Supply, and Market Equilibrium 3 Appendix to Chapter 3 A3.1 Additional Examples of Supply and Demand LOA3.1 Illustrate how supply and demand analysis can provide insights on actual economic situations. © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Lettuce A3.1 Supply shifts left for lettuce Weather destroys part of the crop Demand doesn’t change Consumers still want as much lettuce as before Equilibrium price rises which will reduce the quantity demanded LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited FIGURE A3-1 The Market for Lettuce S2 S1 P2 Price (per kilo) P1 D1 Q2 Q1 Quantity (per kilos) LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Exchange Rates A3.1 Exchange rates – the price of one country’s currency in terms of another country’s currency Currency appreciation Currency depreciation LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited FIGURE A3-2 The Market for Euros S1 $1.50 Dollar price of 1 euro $1.25 D2 D1 Q1 Q2 Quantity of euros LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Pink Salmon A3.1 Supply shifts right for pink salmon New technology New fishers enter the industry Demand shifts left for pink salmon Increases in consumer’s income Reductions in the price of substitutes LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited FIGURE A3-3 The Market for Pink Salmon S1 S2 P1 Price (per kilo) P2 D1 D2 Q1 Q2 Quantity (in kilos) LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Gasoline A3.1 Supply of gasoline decreases Refinery breakdowns Mideast politics and warfare Rising price of oil Demand for gasoline increases Consumers’ incomes increased Low mileage SUVs popular LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited FIGURE A3-4 The Market for Gasoline S2 S1 P2 Price (per liter) P1 D2 D1 Q1 Q2 Quantity (in liters) LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Sushi A3.1 Supply shifts right Increase in the number of sushi bars Demand shifts right Consumers’ tastes for sushi increases LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited FIGURE A3-5 The Market for Sushi S1 S2 Price (per kilo) P1 D2 D1 Q1 Q2 Quantity (kilos) LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Upsloping versus Vertical Supply Curves A3.2 Upsloping Supply Curves Any shift in demand will cause both the equilibrium price and quantity to adjust. Vertical Supply Curves Any shift in demand will cause only the equilibrium price to change (e.g. a stadium seats) LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited FIGURE A3-6 The Market for Land in Toronto S P2 Price (per kilo) P1 D2 D1 Q0 Quantity (kilos) LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Preset Prices A3.2 Preset prices can cause market imbalances Olympics Figure Skating Finals Preset price results in a shortage of tickets Olympics Curling Preliminaries Preset prices result in a surplus of tickets LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited The Market for Tickets to Olympic Women’s Figure Skating Finals FIGURE A3-7 P Figure Skating Quantity (tickets) Price (per ticket) S P1 b a P2 Shortage D Q1 Q2 LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited The Market for Tickets to Olympic Curling Preliminaries FIGURE A3-8 P Curling Quantity (tickets) Price (per ticket) S Surplus a b P2 P1 D Q2 Q1 LOA3.1 © 2016 McGraw‐Hill Education Limited

© 2016 McGraw‐Hill Education Limited Summary APPENDIX LOA3.1 Illustrate how supply and demand analysis can provide insights on actual economic situations. Change in supply of a product vs demand The effect of simultaneous changes in supply and demand on the equilibrium price and quantity varies. The effect of changes in demand for product with fix quantities supplied on equilibrium price not equilibrium quantity If preset prices are below equilibrium prices, it results in shortages and secondary markets. Surpluses occur when preset prices are above equilibrium prices. LOA3.1 © 2016 McGraw‐Hill Education Limited