Supply and Demand

The Basic Graph (aka “The Starting Point”) Equilibrium

Definition for Supply  The total amount of a good or service producers are willing and able to make at all prices at a specific point in time.

Law of Supply  States that as price increases (or decreases) the quantity supplied also increases (or decreases). or

Things (determinants that could shift (change) the SUPPLY of a product  Price and availability of land, labor and capital (OJ v. cold winter)  New technology (cotton gin)  Number of other sellers (grocery stores in M’town)

Things (determinants that could shift (change) the SUPPLY of a product, cont.  Price of other goods I could produce (fresh fruits/vegetables in summer v. winter)  Taxes (if they increase overall cost goes up too)

Graphing a Shift in Supply (start w/ the basic graph) S2

Graphing a Shift in Supply  The NEW supply line (S2) is called the Supply Curve. That’s Crazy – it’s a straight line! (don’t let that throw you off) That’s Crazy – it’s a straight line! (don’t let that throw you off)

Graphing a Shift in Supply (show the new price/quantity) S2 P2 Q2

Definitions for Demand  The total amount consumers are willing and able to buy at all prices at a specific point in time.

Law of Demand  States that as price increases (or decreases) the quantity demanded decreases (or increases). or

Things (determinants) that could shift (change) the DEMAND for a product  Tastes and fads (McNabb shirts)  Income (Prada, Coach, BMW)  Number of buyers (Burger King)

Things (determinants) that could shift (change) the DEMAND for a product, cont.  Future price expectations (SUVs when gas increases)  Price and availability of  Substitutes (Uggs v. no name)  Compliments (jam/jelly w/ PB)

Graphing a Shift in Demand (start w/ the basic graph) D2

Graphing a Shift in Demand  The NEW Demand line is called the Demand Curve. That’s Right Folks – it’s also a straight line! That’s Right Folks – it’s also a straight line!

Graphing a Shift in Demand (show the new price/quantity) P2 Q2 D2

I R D L Always remember it so you know whether to shift right or left (for either supply or demand)...

I R D L stands for...  Increase  Right  Decrease  Left

Let’s Try It! Imagine you are reading a newspaper and come across the following headlines...

Two Major Computer Manufacturers Build Five New Factories  Does it deal with Supply or Demand?  Supply  Does supply increase or decrease?  Increase  Does the supply curve shift to the right or left?  Right

Doctors announce benefits of eating ice cream Try Another

Car Manufacturer Announces Plans for SUV Price Increase in Two Months Here’s a Tricky One

Toyota unveils new car that gets 97 mpg!

Protected Owls Discovered in Lumber Forest! Companies told to discontinue logging.

For Group Charting  Two markers  One big sheet of paper  One headline