Increases and Decreases in Supply and Demand Mr. Raposo Monday, October 5, 2009

Agenda l Increase/decrease in supply l Increase/decrease in demand l HW Chapter 2 quiz tomorrow l Begin Facebook theorist project (groups of 3 or 4)

The Equilibrium Market for Blu-ray Players (thousands) (Hundreds of dollars)

S2S2 An Increase in the Supply of Blu-ray Players Surplus of (thousands) (Hundreds of dollars)

l An increase in the supply of Blu-ray players causes the supply curve to shift to the right. The shift from S1 to S2 causes a temporary surplus (of 100 blu-ray’s). As a result, price falls until a new equilibrium point of supply and demand is reached. The new equilibrium price is $300 and 300 blu-ray players ( a fall in price by $100 and a rise in quantity by 50 blu-ray players). An Increase in the Supply of Blu-ray Players

S0S0 A Decrease in the Supply of blu-ray’s Players Shortage of (thousands) (Hundreds of dollars)

l An decrease in the supply of blu-ray players causes the supply curve to shift to the left. The shift from S1 to S0 causes a temporary shortage (of 100 blu-ray’s). l As a result, price rises until a new equilibrium point of supply and demand is reached. The new equilibrium price is $500 and 200 blu-ray players. l Price has increased by $100 and quantity has fallen by 50 Blu-ray players l. A Decrease in the Supply of Blu-ray Players

D2 An Increase in the Demand for blu-ray Players Shortage of (thousands) (Hundreds of dollars)

l An increase in the demand for blu-ray players causes the demand curve to shift to the right. l The shift from D1 to D2 causes a temporary shortage (of 100 blu-ray’s). As a result, price rises until a new equilibrium point of supply and demand is reached. The new equilibrium price is $500 and 300 blu-ray’s D players. l Price has increased by $100 and quantity has fallen by 50 blu-ray’s players l. An Increase in the Demand for blu-ray Players

D0 A Decrease in the Demand for blu-ray Players Surplus of (thousands) (Hundreds of dollars)

l A decrease in the demand for blu-ray players causes the demand curve to shift to the left. The shift from D1 to D0 causes a temporary surplus (of 100 Blu-ray). As a result, price falls until a new equilibrium point of supply and demand is reached. The new equilibrium price is $300 and 200 blu- ray players. l Price has decreased by $100 and quantity has fallen by 50 blu-ray players A decrease in the Demand for blu-ray Players

Summary Ceteris Paribus……. l Increase in supply causes a decrease in price and an increase in quantity l Decrease in supply causes an increase in price and an decrease in quantity l Increase in demand causes an increase in price and an increase in quantity l Decrease in demand causes an decrease in price and an decrease in quantity

EffectPrice (P)Quantity (Q)Demand (D)Supply (S) Increase in Supply DecreaseIncreaseUnchangedIncrease Right Decrease in Supply IncreaseDecreaseUnchangedDecrease Left Increase in Demand Increase Increase RightUnchanged Decrease in Demand Decrease Decrease LeftUnchanged Summary