1. Section 2 Supply & Demand Modules 5-9 Module 5 Introduction & Demand
AP Macroeconomics
Instructor Nancy K. Ware
Gainesville High School

2. What you will learn in this module:
What a competitive market is and how it is described by the supply and demand model
What the demand curve is
The difference between movements along the demand curve and changes in demand
The factors that shift the demand curve

3. Information Brain Upload: What is a Competitive Market?
Video clip: Different types of markets
Information Brain Upload: What is a Competitive Market?
A ___________ is where consumers and producers engage in v_______________ e______________.
What is voluntary exchange? Consumer purchasing goods and services of own ________ ___________.
What is a competitive market:
Competitive markets are governed by D____________ and S___________.

4. Information Brain Upload: What is a Competitive Market?
Video clip: Different types of markets
Information Brain Upload: What is a Competitive Market?
A market is where consumers and producers engage in voluntary exchange.
What is voluntary exchange? Consumer purchasing goods and services of own free will.
What is a competitive market: a market where there are many buyers and sellers of the same good and service.
Competitive markets are governed by demand and supply.

5. All Competitive Markets Large & Small
Markets can be l______, n__________ and i________________.
Some markets are personal, face to face exchanges ~ example: ___________ or impersonal & distant ~ example: ______________
Each of these buyers and sellers are small, and cannot affect the price of the product.

6. All Competitive Markets Large & Small
Markets can be local, national and international
Some markets are personal, face to face exchanges ~ example: yard sale or impersonal & distant ~ example: internet
Each of these buyers and sellers are small, and cannot affect the price of the product.

7. Terms to Know: The Demand Schedule & Curve Video Clip: Demand
Notes
Demand schedule: table showing how much of a good or service consumers will want to buy at different prices
Law of demand: As price rises, the quantity demanded (the actual amount consumers are willing to buy), will fall or decrease all other things being equal (ceteris paribus)
Demand Curve: the graphical illustration of the points that show this relationship between quantity demanded and price

8. Law of Demand: Fundamental Characteristic of Human Behavior
Other things being equal, as the _________ increases, corresponding ____________ _____________ decreases
In other words, the relationship is ____________ between price and quantity demanded
Drawings here

9. Law of Demand: Fundamental Characteristic of Human Behavior
Other things being equal, as the price increases, corresponding quantity demanded decreases
In other words, the relationship is inverse between price and quantity demanded
Drawings here

10. Demand Schedule & Curve
Price of Coffee Beans per pound
Demand Schedule for Coffee beans
Price of coffee beans per pound
Quantity of coffee beans demanded (billions of pounds)
2.00
7.1
1.75
7.5
1.50
8.1
1.25
8.9
1.00
10.0
.75
11.5
.50
14.2
2.00
1.75
1,50
1.25
1.00
.75
.50 = D
As price increases, quantity demanded decreases. As price decreases, quantity demanded increases.
Quantity of Coffee Beans (billions of pounds)

11. Soda Pop Demand Drawing
Draw the corresponding demand curve from the demand schedule below.
What happens when price falls from $3 a can to $2 per can?
What is movement is along the curve?
Price Per Soda
Quantity demanded per Week $5 50 4
100 3
150 2
200 1
250

12. Soda Pop Demand Drawing
Draw the corresponding demand curve from the demand schedule below.
What happens when price falls from $3 a can to $2 per can?
What is movement is along the curve?
Price 6 5 4 3 2 1
Quantity D
Price Per Soda
Quantity demanded per Week $5 50 4
100 3
150 2
200 1
250

13. Understanding Shifts of the Demand Curve
Increase = right, Decrease = left
M.E.R.I.T. shifts demand
market size (number of consumers)
expectations
related prices (complements, substitutes)
income (normal, inferior)
tastes

14. What Else Affects Demand??
Market Size : Number of Buyers (Population) ~ More buyers lead to an increase in demand; fewer buyers lead to a decrease in demand.
Example: the baby Boomer generation has grown older. Demand for what types of products have increased?
Prescription drugs
Medical equipment
Assisted living products (bath tubs, etc)

15. What Else Affects Demand??
Expectations ~ Consumers have expectations about future prices, product availability, and income, and these expectations can shift demand.
WWYD? Future price of gas is going up $10.00 per gallon tomorrow. What happens to demand?
WWYD? An item you want is going on sale next week. What happens to your current demand? What happens to your future demand?

16. What Else Affects Demand??
Related Prices
Substitution Effect ~ Those goods that can be used in place of each other. Price of substitutes and demand for the other good are directly related.
If the price of Charmin goes up, the demand for Wal-Mart brand toilet paper may shift to the right.
Complementary Goods ~ Goods that are used together like tennis balls and rackets. Complementary goods have an inverse relationship between price of one and the demand for the other.
If the price of golf clubs go up, the demand for golf balls will shift to the left.

17. What Else Affects Demand??
Income ~ Changes in Incomes affect demand
Income increases: more n________g_____ are demanded
Income decreases: less n________g______ are demanded
What are normal goods?____________________ ______________________________________________________________ Examples?
_______________________
________________________
Income Increases (for some goods)lead to a decrease in demand for inferior goods. What is an inferior good?
__________________________
_______________________________
More inferior goods may be consumed when income ______________

18. What Else Affects Demand??
Income ~ Changes in Incomes affect demand
Income increases: more normal goods are demanded
Income decreases: less normal goods are demanded
What are normal goods? Goods that are in demand when income rises. Like?
New Cars
New Clothes
National brand names
Income Increases (for some goods)lead to a decrease in demand for inferior goods. What is an inferior good?
Bus tickets
Second hand clothing
Used cars
Store brand instead of national brand
More inferior goods may be consumed when income decreases

19. What Else Affects Demand??
Tastes and Advertising ~ Advertising plays an important role in many trends and fads & influences demand.
Demand for a sports team’s apparel may increase when the team is winning, and decrease when it is losing.
Demand for a good may increase after consumers see a funny Superbowl commercial
Demand may increase for certain colors and designs after seeing these fashions on TV shows

20. Demand Movement vs. a Shift
A movement occurs along the demand curve and is only caused by price increases or decreases.
A shift of the entire demand curve occurs when quantity demanded increases (or decreases) at every price level.
If a curve jumps right, it is increasing.
If a jumps left, it is decreasing.
Shift of the entire curve to the right
2.00
1.75
1,50
1.25
1.00
.75
.50 =
Movement along the curve

21. Shifts of the Demand Curve
An increase in population leads to an increase in the quantity of coffee demanded. Graph the new demand curve.
Demand Schedule for Coffee beans
Price of coffee beans per pound
Quantity of coffee beans demanded (billions of pounds)
2002
2006
$2.00
7.1
8.5
1.75
7.5
9.0
1.50
8.1
9.7
1.25
8.9
10.7
1.00
10.0
12.0
.75
11.5
13.8
.50
14.2
17.0

22. Shifts of the Demand Curve
Price of Coffee Beans per pound
An increase in population leads to an increase in the quantity of coffee demanded. Graph the new demand curve.
2.00
1.75
1,50
1.25
1.00
.75
.50 =
Demand Schedule for Coffee beans
Price of coffee beans per pound
Quantity of coffee beans demanded (billions of pounds)
2002
2006
$2.00
7.1
8.5
1.75
7.5
9.0
1.50
8.1
9.7
1.25
8.9
10.7
1.00
10.0
12.0
.75
11.5
13.8
.50
14.2
17.0 D2 D1
Quantity of Coffee Beans (billions of pounds)

23. Individual Demand Curves & Market Demand Curves
Individual Demand Curve: Illustrates the relationship between quantity demanded and price for an individual consumer
Market Demand Curve: illustrates the quantity demanded by all consumers at given prices

24. What is YOUR Demand GHS? Activity
In groups, select a product from the list, or come up with your own. Survey & find out amongst your group what the demand would be at 5 possible price points that you create for your product. (demand schedule)
Interview 2 more students outside your group for their demand and record your points on a graph and draw your demand curve.
At what price on the demand curve was quantity demanded the highest?
Why?
Pick an outside factor that would shift your entire curve either right or left. Redraw your demand curve. Explain why this shifted your curve.
Products To Sell at GHS?
Private Parking Spots
Breakfast Burritos
GHS Sunglasses
GHS Rain jackets
GHS Flip flops
GHS IPhone cases
Your own idea!!

25. Class Project: GHS Demand for…..? What?
How was the Back to School Dance?
What do Red Elephants have the desire to do?
Come up with 5 different options for back to school functions besides a dance. Find out how much GHS students would be willing to pay to attend at your predetermined prices.
Draw a demand schedule and curve based on your information.

26. Module 5 Review p. 57-58 all questions
Read Module 6 Changes in Equilibrium
Strive for a 5

27. Module 6 Supply & Equilibrium

28. What you will learn in this Module:
What the supply curve is
The difference between movements along the supply curve and changes in supply
The factors that shift the supply curve
How supply and demand curves determine a market's equilibrium price and equilibrium quantity
In the case of a shortage or surplus, how price moves the market back to equilibrium

29. Terms to Know: Supply & Equilibrium
1. Quantity Supplied:
the actual amount of a good or service producers are willing to sell at some specific price
2. Supply schedule:
shows how much of a good or service producers will supply at different prices
3. Supply curve:
shows the relationship between quantity supplied and price

30. Law of Supply: Fundamental Characteristic of Producer Behavior
All things being equal, the p_____ and the q__________ s__________ are p____________ related. In other words, the higher the price being offered the more of any good or service producers are willing to sell.
Why?
P Qs

31. Law of Supply: Fundamental Characteristic of Producer Behavior
All things being equal, the price and the quantity supplied are positively related. In other words, the higher the price being offered the more of any good or service producers are willing to sell.
Why?
P Qs

32. Supply Schedule & Curve
Price of Coffee Beans per pound
2.00
1.75
1,50
1.25
1.00
.75
.50 =
Supply Curve S
Supply Schedule for Coffee beans
Price of coffee beans per pound
Quantity of coffee beans supplied (billions of pounds)
2.00
11.6
1.75
11.5
1.50
11.2
1.25
10.7
1.00
10.0
.75
9.1
.50
8.0
Supply curve slope upward
Quantity of Coffee Beans (billions of pounds)
As price increases, quantity supplied increases.
As price decreases, quantity supplied decreases. WHY?

33. Soda Pop Supply Drawing
Draw the corresponding Supply curve from the supply schedule below.
What happens when price falls from $3 a can to $2 per can?
What is movement down the supply curve?
Price Per Soda
Quantity supplied per Week $5
250 4
200 3
150 2
100 1 50
Quantity

34. Soda Pop Supply Drawing
Draw the corresponding Supply curve from the supply schedule below.
What happens when price falls from $3 a can to $2 per can?
What is movement down the supply curve?
Price 6 5 4 3 2 1 S
Price Per Soda
Quantity supplied per Week $5
250 4
200 3
150 2
100 1 50
Quantity

35. Understanding Shifts of the Supply Curve
Increase = right, decrease = left
T.R.I.C.E. shifts supply
Technology
Related prices (complements in production, substitutes in production)
Input prices
Competition (number of producers)
Expectations

36. What Else Shifts Supply?
Technology ~ Technological improvements mean more e______________ production and l________ c_______ to produce, so an increase in supply or a rightward shift of the curve is the result.
Examples? Genetically altered c___________ will increase the supply of __________________.
Prices of related goods or services ~ If the price of a substitute production good rises, producers might shift production toward the higher priced good causing a decrease in supply of the original good.
Examples? Increase in the price of c______________has lead farmers to decrease the supply of w_______________, and plant more c_______________. WHY?

37. What Else Shifts Supply?
Technology ~ Technological improvements mean more efficient production and lower costs to produce, so an increase in supply or a rightward shift of the curve is the result.
Examples? Genetically altered corn will increase the supply of corn and related products.
Prices of related goods or services ~ If the price of a substitute production good rises, producers might shift production toward the higher priced good causing a decrease in supply of the original good.
Examples? Increase in the price of corn has lead farmers to decrease the supply of wheat, and plant more corn. WHY? ~~~ Profit~~~~

38. What Else Shifts Supply?
Input (resource prices) ~ A rise in input price (cost to produce) will cause a ________________in supply or a ____________shift in the supply curve.
A decrease in input prices will cause an _____________ in supply or a ___________________ shift in the supply curve.
Examples? Increase in the input price of _____________leads to a decrease in quantity supplied of _________________.

39. What Else Shifts Supply?
Input (resource prices) ~ A rise in input price (cost to produce) will cause a decrease in supply or a leftward shift in the supply curve.
A decrease in input prices will cause an increase in supply or a rightward shift in the supply curve.
Examples? Increase in the input price of corn leads to a decrease in quantity supplied of you name it – corn chips, chicken, beef, cereal, etc.

40. What Else Shifts Supply?
Expectations ~ expectations about the _________________ of a product can cause producers to increase or decrease current supply.
Examples?
Competition or Number of sellers in a market ~ generally, the __________ the number of sellers, the ______________ the supply

41. What Else Shifts Supply?
Expectations ~ expectations about the future price of a product can cause producers to increase or decrease current supply.
Examples? Expectations of higher oil prices next month may cause refiners to decrease supply to the market today.
Competition or Number of sellers in a market ~ generally, the larger the number of sellers, the greater the supply

42. Shifts of the Supply Curve
2.00
1.75
1,50
1.25
1.00
.75
.50 = S1
Quantity of Coffee Beans (billions of pounds)
Price of Coffee Beans per pound S2
Supply Curve before entry of new producers
Supply Curve after entry of new producers
New producers enter the market for coffee beans.
Graph the new supply curve.
Supply Schedule for Coffee beans
Price of coffee beans per pound
Quantity of coffee beans supplied (billions of pounds)
Before Entry
After Entry
2.00
11.6
13.9
1.75
11.5
13.8
1.50
11.2
13.4
1.25
10.7
12.8
1.00
10.0
12.0
.75
9.1
10.9
.50
8.0
9.6

43. Supply, Demand, & Equilibrium
What is equilibrium?
Economic situation when no individual would be better off doing something different
Think balance, stability, even
What is Equilibrium Price?
The price that matches the quantity supplied and the quantity demanded
What is Equilibrium Quantity?
Quantity bought and sold at the equilibrium price
Think the price that consumers will buy that producers will also be willing to supply for
Also known as Market Clearing Price

44. Finding Equilibrium Price & Quantity
Where is equilibrium price and quantity?
Price 6 5 4 3 2 1
Price Per Soda
Quantity demanded per Week
Quantity supplied per Week
Shortage or Surplus? $5 50
250 4
100
200 3
150 2 1
Where is the equilibrium price?
Quantity

45. Finding Equilibrium Price & Quantity
Where is equilibrium price and quantity?
Price 6 5 4 3 2 1 S D
Price Per Soda
Quantity demanded per Week
Quantity supplied per Week
Shortage or Surplus? $5 50
250 4
100
200 3
150 2 1
Equilibrium or market clearing price
Where is the equilibrium price?
Quantity

46. Equilibrium, Surplus & Shortage
Market Clearing Price is where Qd = Qs
At this price there is no tendency for the price to rise or fall ~ the market is in a state of balance
Why do producers lower prices?
Because of a surplus of a product they need to sell
Surplus = Qs – Qd
Why do producers raise their prices above equilibrium?
To eliminate the shortage
Shortage = Qd – Qs

47. Price Above Equilibrium Creates a Surplus
Surplus = Qs – Qd
200 – 100 = 100 surplus
What should the producer do to the price?
Lower it!
Price 6 5 4 3 2 1 S D E
Surplus
Quantity Demanded
Quantity Supplied

48. Price Below Equilibrium Creates a Shortage
Shortage = Qd – Qs
100 – 200 = -100 shortage
What should producers do to get rid of the shortage?
Raise the price!
Price 6 5 4 3 2 1 S D E
Quantity Demanded
Quantity Supplied
Shortage

49. Are You A Supplier? You Betcha!
How many hours are you willing to work raking leaves this fall? Or work as a cashier at a local store? Create a supply curve with the amount of hours you are willing to supply labor at the following wages for both jobs. After you have your supply schedule, draw supply curves for each type of labor.
Wages
Hours willing to rake leaves
$16 12 10 8 6
Wages
Hours willing to cashier
$16 12 10 8 6

50. Module 6 Review p. 69 -70 all questions
Read Module 7 Changes in Equilibrium
Strive for a 5 & Supply Activity Packet Reasons for Changes in Supply p (stop at part B)