Supply & Demand

Before We Start Economic Terms: Market Competitive Market Perfectly Competitive Normal Good Inferior Good Substitutes Complements Ceteris Paribus “Other things being equal” Economic Terms: Market Competitive Market Perfectly Competitive Normal Good Inferior Good Substitutes Complements Ceteris Paribus “Other things being equal”

Demand Quantity Demanded  Shift along Demand Curve Price Determinants of Demand  Shift of the Demand Curve Price of related goods Income Tastes Expectations Number of buyers or sellers Quantity Demanded  Shift along Demand Curve Price Determinants of Demand  Shift of the Demand Curve Price of related goods Income Tastes Expectations Number of buyers or sellers

Demand Schedule Ice cream cones PriceQuantity $ $ $1.008 $1.506 $2.004 $2.502 $3.000 Ice cream cones PriceQuantity $ $ $1.008 $1.506 $2.004 $2.502 $3.000

Demand Curve P Q

Market Demand Market = Sum of parts 2 person Market PriceAnneBillMarket $ $ $ $ Market = Sum of parts 2 person Market PriceAnneBillMarket $ $ $ $

Shift In Demand What happens when there is a Change in Demand? Changes caused by factors other than price. Examples: > income increases demand for luxury cars < price in gas decreases demand for economy cars What happens when there is a Change in Demand? Changes caused by factors other than price. Examples: > income increases demand for luxury cars < price in gas decreases demand for economy cars

Shift In Demand

Question Give two economic ways (in terms of demand) that the government could use to stop teenage smoking. Use graphs to show your work for both answers. Give two economic ways (in terms of demand) that the government could use to stop teenage smoking. Use graphs to show your work for both answers.

Supply

What Determines Supply? Determinants Price Input Prices Technology Expectations Determinants Price Input Prices Technology Expectations Terms Law of Supply Supply Schedule Supply Curve Terms Law of Supply Supply Schedule Supply Curve

Supply Quantity Supplied  Movement along Demand Curve Price Determinants of Supply  Change in the Demand Curve Price of related goods Input Prices Technology Expectations Number of buyers or sellers Quantity Supplied  Movement along Demand Curve Price Determinants of Supply  Change in the Demand Curve Price of related goods Input Prices Technology Expectations Number of buyers or sellers

Supply Schedule Price $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 Price $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 Quantity Quantity

Supply Curve P Q

Shift In Supply

Question Using a supply curve graph, demonstrate the effects of the following on Health Care supply. Universal coverage Elimination of Caps Using a supply curve graph, demonstrate the effects of the following on Health Care supply. Universal coverage Elimination of Caps

Equilibrium Supply & Demand Intersection determines Price Quantity Terms Surplus Quantity > demand Shortage Demand > quantity Supply & Demand Intersection determines Price Quantity Terms Surplus Quantity > demand Shortage Demand > quantity

Equilibrium Graph P Q

The Market - Surplus Price (£) Quantity Bought and Sold (000s) S D £5 600 D1 300 Surplus £3 450 A shift in the demand curve to the left will reduce the demand to 300 from 500 at a price of £5. Suppliers do not have the information or time to adjust supply immediately and still offer 600 for sale at £5. This results in a market surplus (S > D) In an attempt to get rid of surplus stock, producers will accept lower prices. Lower prices in tn attract some consumers to buy. The process continues until the surplus disappears and equilibrium is once again reached.

The Market - Shortage Price (£) Quantity Bought and Sold (000s) S D £5 600 S1 100 Shortage £8 350 A shift in the supply curve to the left would lead to less products being available for sale at every price. Suppliers would only be able to offer 100 units for sale at a price of £5 but consumers still desire to purchase 600. This creates a market shortage. (S < D) The shortage in the market would drive up prices as some consumers are prepared to pay more. The price will continue to rise until the shortage has been competed away and a new equilibrium position has been reached.

Increase in Demand Price Quantity D1D1 D2D2

Decrease in Demand Price Quantity D2D2 D1D1

Increase in Supply Price Quantity S1S1 S2S2

Decrease in Supply Price Quantity S2S2 S1S1

Demand Up & Supply Up  Price Undetermined & Quantity Up Price Quantity D1D1 S1S1 S2S2 D2D2 P1P1 Q1Q1 Q2Q2

Demand Down & Supply Down  Price Undetermined & Quantity Down Price Quantity D2D2 S2S2 S1S1 D1D1 P1P1 Q2Q2 Q1Q1

Demand Down & Supply Up  Price Down & Quantity Undetermined Price Quantity D2D2 S1S1 S2S2 D1D1 P1P1 P2P2 Q1Q1

Demand Up & Supply Down  Price Up & Quantity Undetermined Price Quantity D1D1 S2S2 S1S1 D2D2 P2P2 P1P1 Q1Q1