1. Pick up at the front of the room and wait for the video to start!!!
Today’s Warm Up
Pick up at the front of the room and wait for the video to start!!!

2. Shifts in Supply and Demand
Today’s LEQ: How do markets operate?

3. Shifts in Supply and Demand
Quantity supplied/demanded refers to amount producers/consumers wish to sell/buy; change in QS or QD represented by movement along the corresponding curve
Supply/demand refers to the position of the supply/demand curve
Change is S or D represented by the movement of the entire curve

4. Factors that cause demand to change or shift
Tastes and fads
Income
normal goods vs. inferior goods
Number of buyers
Expectations
Future prices
Future income
Price of related goods:
Substitutes (i.e. Coke and Pepsi)
Compliments (i.e. peanut butter and jelly)
Can you come up with a cool mnemonic device???

5. Activity 1: Think, Pair, Coach
Person A – complete side A
Explain your answer to Person B
Person B will say “Yes, that’s correct! Great job!”… Or, they will explain what you did wrong
Person B – Complete side B
Explain your answer to Person A
Person A will say “Yes, that’s correct! Great job!”… Or, they will explain what you did wrong
Alternate until all questions have been completed.

6. Factors that cause a change in supply:
Input prices: land, labor or capital (factors of production)
Technology
Expectations
Future prices
Prices of other goods you could produce
Number of sellers
Changes in tax policy or subsidies
Can you come up with a cool mnemonic device???

7. Activity 2: Think, Pair, Coach
Person A – complete side A
Explain your answer to Person B
Person B will say “Yes, that’s correct! Great job!”… Or, they will explain what you did wrong
Person B – Complete side B
Explain your answer to Person A
Person A will say “Yes, that’s correct! Great job!”… Or, they will explain what you did wrong
Alternate until all questions have been completed.

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

9. Today’s Warm Up
Pick up the article from the front desk. Read and complete the steps below. BE READY TO SHARE!
3 steps for analyzing changes in equilibrium:
Decide whether the event shifts the supply or demand curve.
Decide in which direction the curve shifts.
Use the supply and demand diagram to see how the shift changes equilibrium price and quantity.

10. Justin Bieber…
Failed his economic assignment (probably because he was in jail). Help him understand what he did wrong.

11. Market Equilibrium
Equilibrium occurs where the demand curve and supply curve intersect
Equilibrium price and equilibrium quantity
Surplus and shortage
Rationing function of prices = ability of competitive forces of S & D to establish price where buying and selling decisions are coordinated
Efficient allocation
The equilibrium price is also known as the market-clearing price. Graphically, note that the equilibrium price and quantity are where the supply and demand curves intersect. It is important to note that it is not correct to say supply equals demand.
The rationing function of prices is the ability of competitive forces of supply and demand to establish a price where buying and selling decisions are coordinated.
At prices above this equilibrium, note that there is an excess quantity supplied, or a surplus.
At prices below this equilibrium, note that there is an excess quantity demanded, or shortage.
At equilibrium the markets are economically efficient.
LO4

12. Efficient Allocation Productive efficiency
Producing goods in the least costly way
Using the best technology
Using the right mix of resources
Allocative efficiency
Producing the right mix of goods
The combination of goods most highly valued by society
Competitive markets generate productive efficiency that is the production of any particular good in the least costly way. Sellers that don’t achieve the least-cost combination of inputs will be unprofitable and have difficulty competing in the market.
The competitive process also generates allocative efficiency which is producing the combination of goods and services most valued by society. Allocative efficiency requires that there be productive efficiency. Productive efficiency can occur without allocative efficiency. Goods can be produced in the least costly method without being the most wanted by society. Allocative and productive efficiency occur at the equilibrium price and quantity in a competitive market. Resources are neither over-allocated nor under-allocated based on society’s wants.
LO4

13. Market Equilibrium P Qd P Qs 6,000 bushel S surplus 7,000 bushel5 4 3 2 1
6,000 bushel
surplus S P Qd P Qs
2000
4000
7000
11,000
16,000 $5 4 3 2 1 $5 4 3 2 1
12,000
10,000
7000
4000
1000
Price (per bushel) 3
The intersection of the downsloping demand curve, D, and the upsloping supply curve, S, indicates the equilibrium price of $3 and equilibrium quantity of 7,000 bushels of corn per week.
The shortages of corn at below-equilibrium prices (for example, 7000 bushels at $2) drive up the price. The higher prices increase the quantity supplied and reduce the quantity demanded until equilibrium is achieved. The surpluses caused by above-equilibrium prices (for example, 6000 bushels at $4) push the price down. As price drops, the quantity demanded rises and the quantity supplied falls until equilibrium is established. At the equilibrium price and quantity, there are neither shortages nor surpluses of corn.
7,000 bushel
shortage D 7
Bushels of corn (thousands per week)
LO4

14. Rationing Function of Prices
The ability of the competitive forces of demand and supply to establish a price at which selling and buying decisions are consistent
Prices automatically rise and fall and bring a market closer to equilibrium. Prices are the best tool for eliminating market shortages and surpluses.
LO4

15. Changes in Demand and Equilibrium
D increase:
P, Q
D decrease:
P, Q P P S S D2 D3
An increase in demand results in an increase in price and an increase in quantity exchanged.
A decrease in demand results in a decrease in price and a decrease in the quantity exchanged. D1 D4
Increase in demand
Decrease in demand
LO5

16. Changes in Supply and Equilibrium
S increase:
P, Q
S decrease:
P, Q P P S1 S2 S4 S3 D D
An increase in supply results in a decrease in price and an increase in the quantity exchanged.
A decrease in supply results in an increase in price and a decrease in the quantity exchanged.
Increase in supply
Decrease in supply
LO5

17. Effect on Equilibrium Price Effect on Equilibrium Quantity
Complex Cases
Effects of Changes in Both Supply and Demand
Change in Supply
Change in Demand
Effect on Equilibrium Price
Effect on Equilibrium Quantity
1. Increase
Decrease
Indeterminate
2. Decrease
Increase
3. Increase
4. Decrease
These cases demonstrate what happens to equilibrium price and equilibrium quantity when supply and demand shifts occur simultaneously.
If supply increases and demand decreases, price declines, but the new equilibrium quantity depends on the relative sizes of shifts in demand and supply.
If supply decreases and demand increases, price rises, but the new equilibrium quantity depends on the relative sizes of shifts in demand and supply.
If supply and demand change in the same direction (both increase or both decrease), the change in equilibrium quantity will be in the direction of the shift but the change in equilibrium price now depends on the relative shifts in demand and supply.
LO5