SIMPSONS STYLE

OPPORTUNITY COST THE VALUE OF THE NEXT BEST ALTERNATIVE (WHAT YOU ARE GIVING UP TO DO WHAT YOU ARE DOING) EXAMPLE: THINK OF WHAT BART COULD BE DOING INSTEAD OF BEING IN ECON CLASS? SKATEBOARDING, SLEEPING, PLAYING VIDEO GAMES, WORKING, ETC.

BUT HOW DO WE FIGURE OUT WHAT WE ARE GIVING UP?

PRODUCTION POSSIBILITIES FRONTIER (PRODUCTION POSSIBILITIES CURVE) SHOWS HOW MUCH OF ONE GOOD WE GIVE UP TO PRODUCE ONE MORE OF ANOTHER EXAMPLE: TABLETS AND LAPTOPS

ASSUME A COMPANY MAKES BOTH TABLETS AND LAPTOPS THEY MUST DECIDE HOW MANY OF EACH TO MAKE WE KNOW THAT IN ONE DAY THEY CAN MAKE: 1000 TABLETS OR 500 LAPTOPS LAPTOPS TABLETS

ASSUME A COMPANY MAKES BOTH TABLETS AND LAPTOPS THEY MUST DECIDE HOW MANY OF EACH TO MAKE WE KNOW THAT IN ONE DAY THEY CAN MAKE: 1000 TABLETS OR 500 LAPTOPS LAPTOPS TABLETS LET’S DECIDE WHICH POINTS ARE EFFICIENT, INEFFICIENT, & IMPOSSIBLE AT THIS TIME

WHAT IS SUPPLY AND DEMAND? WHAT DOES IT EVEN MEAN?

P Q D The Law of Demand As price goes up, the quantity demanded goes down. As price goes down, the quantity demanded goes up. HMMM…SO THE CHEAPER IT IS, THE MORE PEOPLE WILL WANT IT…IF IT’S FREE, IT’S FOR ME! DEMAND WILL SLOPE DOWNWARD

P Q S The Law of Supply As price goes up, the quantity supplied goes up. As price goes down, the quantity supplied goes down. WHY WOULD I MAKE SOMETHING WORTH A DOLLAR WHEN I CAN MAKE SOMETHING WORTH 100 DOLLARS…WOO HOO SUPPLY! SUPPLY WILL GO UPHILL

P Q S D BUT HOW DOES THIS SET PRICES?

P Q EPEP EQEQ S D

P Q EPEP EQEQ S D EQUILIBRIUM POINT WHERE SUPPLY MEETS DEMAND AND THE MARKET CLEARS!

P Q EPEP EQEQ S D BUT WHAT IF THE PRICE ISN’T AT THE EQUILIZING THINGY?! EQUILIBRIUM POINT WHERE SUPPLY MEETS DEMAND AND THE MARKET CLEARS!

P Q EPEP EQEQ PRODUCERS SET PRICE ABOVE EQUILIBRIUM POINT S D

P Q EPEP EQEQ (Q SUPPLIED > Q DEMANDED) QDQD QSQS S D Change in Quantity Supplied Change in Quantity Demanded

P Q EPEP EQEQ PRODUCERS SET PRICE ABOVE EQUILIBRIUM POINT (Q SUPPLIED > Q DEMANDED) WE CALL THIS A SURPLUS S D QDQD QSQS

P Q EPEP EQEQ PRODUCERS SET PRICE ABOVE EQUILIBRIUM POINT (Q SUPPLIED > Q DEMANDED) WE CALL THIS A SURPLUS S D QDQD QSQS THE PRICE SHOULD FALL BACK TO EQUILIBRIUM

P Q EPEP EQEQ S D PRODUCERS SET NEW PRICE BELOW EQUILIBRIUM POINT

P Q EPEP EQEQ S D QSQS QDQD (Q DEMANDED > Q SUPPLIED) Change in Quantity Demanded Change in Quantity Supplied

P Q EPEP EQEQ PRODUCERS SET NEW PRICE BELOW EQUILIBRIUM POINT (Q DEMANDED > Q SUPPLIED) WE CALL THIS A SHORTAGE S D QSQS QDQD

P Q EPEP EQEQ PRODUCERS SET NEW PRICE BELOW EQUILIBRIUM POINT (Q DEMANDED > Q SUPPLIED) WE CALL THIS A SHORTAGE S D QSQS QDQD THE PRODUCERS SHOULD MAKE MORE TO RISE TO EQUILIBRIUM

P Q EPEP EQEQ S D EQUILIBRIUM POINT MARKET CLEARS! SURPLUS PRICE IS TOO HIGH TO SELL THEM ALL! SHORTAGE NOT ENOUGH TO GO AROUND

P Q EPEP EQEQ S D EQUILIBRIUM POINT MARKET CLEARS! SURPLUS PRICE IS TOO HIGH TO SELL THEM ALL! SHORTAGE NOT ENOUGH TO GO AROUND NOTICE THAT THE SUPPLY AND DEMAND CURVES NEVER MOVE DUE TO A PRICE CHANGE…ONLY THE QUANTITY SUPPLIED AND QUANTITY DEMANDED CHANGE!

SO WHEN DO THE CURVES SHIFT? WHAT CAUSES THEM TO MOVE? LOTS OF THINGS! TASTES, OTHER PRICES, TECHNOLOGY, THE WEATHER…THE LIST GOES ON AND ON!

P Q S D NOT THIS GRAPH AGAIN!

TRY TO NAME SOME REASONS WHY THIS HAPPENS! P Q S D D1D1

P Q S D D1D1

CHANGES IN INCOME PRICES OF OTHER GOODS (SUBSTITUTES & COMPLEMENTS) CHANGES IN TASTES EXPECTATIONS POPULATION (BABY BOOM) NEWSTORIES AND MORE… CHANGES IN THE DEMAND CURVE CAN BE CAUSED BY:

P Q S D D1D1 EPEP EQEQ P1P1 Q1Q1

P Q S D D1D1 EPEP EQEQ P1P1 Q1Q1 BOTH PRICE AND QUANTITY GO UP!

P Q S D D1D1 EPEP EQEQ P1P1 Q1Q1

P Q S D D1D1 EPEP EQEQ P1P1 Q1Q1 BOTH PRICE AND QUANTITY GO DOWN!

P Q S D EPEP EQEQ P1P1 Q1Q1 S1S1 TRY TO NAME SOME REASONS WHY THIS HAPPENS!

P Q S D EPEP EQEQ P1P1 Q1Q1 S1S1

INPUT COSTS CHANGES IN TASTES EXPECTATIONS CLIMATE EXTERNAL FACTORS TECHNOLOGY NEWSTORIES AND MORE… CHANGES IN THE SUPPLY CURVE CAN BE CAUSED BY:

P Q S D EPEP EQEQ P1P1 Q1Q1 S1S1

PRICE GOES DOWN, BUT QUANTITY GOES UP! P Q S D EPEP EQEQ P1P1 Q1Q1 S1S1

P Q S D EPEP EQEQ P1P1 Q1Q1 S1S1

P Q S D EPEP EQEQ P1P1 Q1Q1 PRICE GOES UP, BUT QUANTITY GOES DOWN! S1S1

NORMAL GOODS v. INFERIOR GOODS Normal Goods: As Income Rises, Demand Rises Inferior Goods: As Income Rises, Demand Decreases Can you name some examples of Inferior Goods?

SUBSTITUTE & COMPLEMENTARY GOODS SUBSTITUTE GOOD: A Good That Can Be Interchanged With Another (Examples: Sodas, Juices, etc) COMPLEMENTARY GOOD: A Good That Is Purchased With Another Good (Examples: Hot Dogs/Rolls, Toothbrush/Toothpaste)

P Q P Q S D S D EPEP EQEQ EPEP EQEQ GOOD 1 GOOD 2 WHY ARE THERE ARE TWO OF THEM?!?!

P Q P Q S D S D EPEP EQEQ EPEP EQEQ GOOD 1: PENCIL GOOD 2: PEN ASSUME THE EQUILIBRIUM PRICE IS THE SAME FOR BOTH…KEEP IT SIMPLE

P Q P Q S D S D EPEP EQEQ EPEP EQEQ NOW, ASSUME THE PRICE OF GOOD 1 RISES P1P1 QDQD QsQs GOOD 1: PENCIL GOOD 2: PEN

P Q P Q S D S D EPEP EQEQ EPEP EQEQ ASSUME THE EQUILIBRIUM PRICE IS THE SAME FOR BOTH…KEEP IT SIMPLE NOW, ASSUME THE PRICE OF GOOD 1 RISES PEOPLE STILL WILLING TO PAY THAT PRICE LOOK FOR ALTERNATIVE (SUBSTITUTE) P1P1 QDQD QsQs GOOD 1: PENCIL GOOD 2: PEN

P Q P Q S D S D EPEP EQEQ EPEP EQEQ ASSUME THE EQUILIBRIUM PRICE IS THE SAME FOR BOTH…KEEP IT SIMPLE NOW, ASSUME THE PRICE OF GOOD 1 RISES PEOPLE STILL WILLING TO PAY THAT PRICE LOOK FOR ALTERNATIVE (SUBSTITUTE) P1P1 QDQD QsQs GOOD 1: PENCIL GOOD 2: PEN D1D1

SUBSTITUTE GOODS AS THE PRICE OF ONE GOOD GOES UP, THE DEMAND FOR THE OTHER GOOD GOES UP OR AS THE PRICE OF ONE GOOD GOES DOWN, THE DEMAND FOR THE OTHER GOOD GOES DOWN

P Q P Q S D S D EPEP EQEQ EPEP EQEQ GOOD 1: PENCIL GOOD 2: ERASER

P Q P Q S D S D EPEP EQEQ EPEP EQEQ ASSUME THE PRICE OF GOOD 1 RISES P1P1 QDQD QsQs GOOD 1: PENCIL GOOD 2: ERASER

P Q P Q S D S D EPEP EQEQ EPEP EQEQ ASSUME THE PRICE OF GOOD 1 RISES NOTICE THE LOSS OF QUANTITY DEMANDED P1P1 QDQD QsQs GOOD 1: PENCIL GOOD 2: ERASER

P Q P Q S D S D EPEP EQEQ EPEP EQEQ ASSUME THE PRICE OF GOOD 1 RISES NOTICE THE LOSS OF QUANTITY DEMANDED PENCILS AND ERASERS ARE BOUGHT TOGETHER, SO DEMAND FOR ERASERS GOES DOWN P1P1 QDQD QsQs GOOD 1: PENCIL GOOD 2: ERASER D1D1

COMPLEMENTARY GOODS AS THE PRICE OF ONE GOOD GOES UP, THE DEMAND FOR THE OTHER GOOD GOES DOWN OR AS THE PRICE OF ONE GOOD GOES DOWN, THE DEMAND FOR THE OTHER GOOD GOES UP

P Q P Q S D S D EPEP EQEQ EPEP EQEQ INPUT GOOD: WOOD GOOD : PENCILS

P Q P Q S D S D EPEP EQEQ EPEP EQEQ INPUT GOOD: WOOD GOOD : PENCILS S1S1 ASSUME A FOREST FIRE OCCURS AND SUPPLY OF WOOD FALLS. HOW DOES THIS IMPACT THE SUPPLY OF PENCILS? P1P1

P Q P Q S D S D EPEP EQEQ EPEP EQEQ INPUT GOOD: WOOD GOOD : PENCILS S1S1 ASSUME A DROUGHT OCCURS AND SUPPLY OF WOOD FALLS. HOW DOES THIS IMPACT THE SUPPLY OF PENCILS? S1S1 P1P1 P1P1

CHANGES IN INPUT GOOD COSTS AS THE PRICE OF INPUTS GOES UP, SUPPLY GOES DOWN. OR AS THE PRICE OF INPUTS GOES DOWN, SUPPLY GOES UP.