1. Shifts in Supply and Demand
Today’s LEQ: How do markets operate? (continued from yesterday)

2. First, Let’s Review Demand…
Demand = the total amount consumers are willing and able to buy at all prices.
Demand Curve = the graphical representation of what consumers are willing and able to buy.

3. Law of Demand: As price increases (decreases), quantity demanded decreases (increases).
P Q P Q

4. Next, Let’s Review Supply…
Supply = the total amount of a good or service producers are able to make at all prices
Supply curve = the graphical representation of a good or service producers are able to make at all prices.

5. Law of Supply: as price increases (decreases) quantity supplied increases (decreases)
P Q P Q

6. Equilibrium Point: the point at which the quantity & the price are equal

8. Shifts in Supply and Demand
Some factors cause supply and demand to shift
Represented by the movement of the entire curve
Changes in QS or QD are represented by movement along the corresponding curve

9. Assuming Perfect Competition…
Five factors must be present:
Unlimited number of buyers and sellers
Standardized product
Free entry and exit
Perfect knowledge of price
Perfect economic decisions (people act in their own best self-interest)

10. Factors that cause demand to change or shift
Tastes and fads
Income
Number of buyers
Future price expectations
Price and availability of:
Substitutes (i.e. Coke and Pepsi)
Compliments (i.e. peanut butter and jelly)

11. Factors that cause a change in supply:
Price of land, labor or capital
Technology
Number of other sellers
Price of other goods I could produce
Tax policy

12. IRDL the Turtle  “IRDL” will help you! INCREASE = RIGHT
DECREASE = LEFT