Lets put both together now… SUPPLY DEMAND Lets put both together now…

Market Equilibrium – exists at the only price D Q Definitions: Market Equilibrium – exists at the only price where Qs = Qd, AKA Market Clearing Price

** we do NOT say where supply equals demand Market Equilibrium D Vocab: Q ** we do NOT say where supply equals demand “supply” means the whole curve, “demand” means the whole curve. “S=D” makes no sense.

Equilibrium is where quantity supplied equals quantity demanded. Market Equilibrium D Vocab: Q Equilibrium is where quantity supplied equals quantity demanded.

Equilibrium price and equilibrium quantity are S P D Q Q Equilibrium price and equilibrium quantity are represented by P & Q. Lines to them are dashed.

A shift in either supply or demand will change the market equilibrium.

A shift in either supply or demand will change the market equilibrium. Example: increase in supply P S S1 P Q D Q A shift in either supply or demand will change the market equilibrium.

The resulting change in P and Q are represented Example: increase in supply P S S1 P Q P1 D Q1 Q The resulting change in P and Q are represented by Q1 and P1, if there is more than one they are Q2 and P2 and so on… The new S or D must also be numbered S1, D1, etc.

The resulting change in P and Q are represented Example: increase in supply P S S1 P Q P1 D Q1 Q The resulting change in P and Q are represented by Q1 and P1, if there is more than one they are Q2 and P2 and so on… The new S or D must also be numbered S1, D1, etc.

Supply and Demand Questions

You can use your notes for this Time For Practice Questions You can use your notes for this

For each question you will need to: 1. Start with a base supply & demand graph 2. Read the question Pepsi The price of Coca Cola doubles, what happens to the market for Pepsi? 3. Label the market 4. Figure out the Shifter 5. Explain: (under graph) shifter, change in S/D, direction and what happened to P and Q 6. Draw the shift with new curve, P & Q’s 7. Go Around The Horn

For each question you will need to: Pepsi The price of Coca Cola doubles, what happens to the market for Pepsi? Price of substitute = D , P ,Q

Demand Shifters Supply Shifters 1. # of consumers 1. # of suppliers 2. Y-Normal Goods 2. Physical Availability 3. Y-Inferior Goods 3. Costs 4. P of Substitutes 4. Technology 5. P of Complements 5. Expected Future Prices 6. Expected Future prices 7. Expected Future Y 8. Preferences

1. What happens to the market for oranges when a sudden and severe frost hits Florida? Oranges S1 P S Decrease in the physical availability of resources. P1 P D Q1 Q Q Your market is: Oranges

1. What happens to the market for oranges when a sudden and severe frost hits Florida? Oranges S1 P S Decrease in the physical availability of resources. P1 P D Q1 Q Q Phys Avail = S , P , Q .

2. What happens to the market for CD’s when the price of CD players goes down? CD’s P S Decrease in the price of a complement. P1 P D1 D Q Q1 Q Your market is: CD’s

2. What happens to the market for CD’s when the price of CD players goes down? CD’s P S Decrease in the price of a complement. P1 P D1 D Q Q1 Q P of Comp = D , P , Q

3. What happens to the market for CD’s when the royalties paid to the song artist goes up? CD’s S1 P S Increase in costs. P1 P D Q1 Q Q Your market is: CD’s

3.What happens to the market for CD’s when the royalties paid to the song artist goes up? CD’s S1 P S Increase in costs. P1 P D Q1 Q Q Costs = S , P , Q

4. The U.S. goes through a boom economy, what happens to the market for steak? Steak P S Increase in incomes— Normal goods. P1 P D1 D Q Q1 Q Your market is: Steak

4. The U.S. goes through a boom economy, what happens to the market for steak? Steak P S Increase in incomes— Normal goods. P1 P D1 D Q Q1 Q Y-Norm Goods = D , P Q

5. The price of milk doubles; what happens to the market for cereal? related product— complement. P P1 D D1 Q1 Q Q Your market is: Cereal

5. The price of milk doubles; what happens to the market for cereal? related product— complement. P P1 D D1 Q1 Q Q P of Comp = D , P , Q

6. The price of airline tickets doubles, what happens to the market for bus tickets? Bus Tickets P S Increase in price of related product— Substitute P1 P D1 D Q Q1 Q Your market is: Bus Tickets

6. The price of airline tickets doubles, what happens to the market for bus tickets? Bus Tickets P S Increase in price of related product— Substitute P1 P D1 D Q Q1 Q P- Sub = D ,P ,Q

U.S. automakers start using robots instead of workers to produce its cars, what happens to the market for U.S. and Foreign automobiles?(2 graphs)

7. U.S. automakers start using robots instead of workers to produce its cars, what happens to the market for U.S. and Foreign automobiles?(2 graphs) The initial change effects the U.S. Auto Market. The resulting change in price would then effect the foreign Auto market.

The End

P U.S. Autos S S1 P P1 D Q Q1 Q Techno = S ,P ,Q

5. The price of milk doubles; what happens to the market for cereal? Foreign Autos P S Price of related product— Substitute. P P1 D D1 Q1 Q Q P of Sub = D , P ,Q