1. Supply and Demand The determinants of supply and demand

2. Plot the following PriceQuantity $92 83 7 5 6 9 What kind of curve is it?

3. Price P Quantity Demanded Qd $92 83 7 5 6 9 P Q 9 2 8 3 7 5 6 9 D Qd just a point on the curve. is the entire curve. To be on the demand curve a person must be WILLING and ABLE to purchase the product or service.

4. Price P Quantity Demanded Qd $92 83 7 5 6 9 P Q 9 2 8 3 7 5 6 9 D Qd just a point on the curve. is the entire curve. There is an ___________ relationship between price and quantity. inverse

5. Q 9 2 8 3 7 5 6 9 D Quantity demanded--it is the amount that will be purchased at a specific P. Definitions: Demand--it is a schedule of quantities of goods and services that will be purchased at various prices at a specified time, all other things held constant.

6. Q 9 2 8 3 7 5 6 9 D Qd just a point on the curve. is the entire curve. Price changes Quantity Demanded Price does not change demand

7. The 8 Determinants of Demand There are 8 reasons or factors that can change a demand curve. 1. Number of consumers.

8. Eight Determinants of Demand: 1. Number of consumers 2. Income--Normal Goods 3. Income--Inferior Goods As people’s incomes go up demand for normal goods increases. As people’s income go down, demand for normal goods decrease. As people’s incomes go up demand for inferior goods decreases. As people’s income go down, demand for inferior goods increases.

9. Eight Determinants of Demand: 1. Number of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences

10. Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes

11. Eight Determinants of Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes 6. Price of related products: Complements

12. Eight variables that shift Demand: 1. # of consumers 2. Income--Normal Goods 3. Income--Inferior Goods 4. Preferences 5. Price of related products: Substitutes 6. Price of related products: Complements 7. Expected future of prices by consumers 8. Expected future of income by consumers

13. Supply Curve Determinants of supply

14. Price Quantity Supplied $3 2 $4 3 $5 4 $6 5 P Q $3 2 $4 3 $5 4 $6 5 S

15. Price Quantity Supplied $3 2 $4 3 $5 4 $6 5 P Q $3 2 $4 3 $5 4 $6 5 S Quantity supplied is just a point on the curve.

16. Price Quantity Supplied $3 2 $4 3 $5 4 $6 5 P Q $3 2 $4 3 $5 4 $6 5 S Supply is the entire curve.

17. Price Quantity Supplied $3 2 $4 3 $5 4 $6 5 P Q $3 2 $4 3 $5 4 $6 5 S There is a _________ relationship between P and Q. Direct

18. Price Quantity Supplied $3 2 $4 3 $5 4 $6 5 P Q $3 2 $4 3 $5 4 $6 5 S Only one variable changes QS and that is_____.

19. Price Quantity Supplied $3 2 $4 3 $5 4 $6 5 P Q $3 2 $4 3 $5 4 $6 5 S PRICE DOES NOT CHANGE SUPPLY!!!!

20. Q S Quantity supplied--it is the amount that will be sold at a specific P. Definitions: Supply--it is a schedule of quantities of goods and services that will be sold at various prices at a specified time, all other things held constant. P

21. Determinants of Supply There are 5 determinants that can change a supply curve.

22. Five determinants of Supply: 1. Number of suppliers 2. Costs 3. Physical Availability of Resources 4. Technology 5. Expected Future Prices by Consumer

24. Your market is: What happens to the market for oranges when there is a frost that hits Florida? P Q S D P Q S1 P1 Q1 Decrease in the physical availability of resources. Oranges

25. Your market is: What happens to the market for CD’s when iPods and downloaded music become popular? Decrease in Preferences. CD’s P Q S D P Q D1 P1 Q1

26. Your market is: What happens to the market for downloaded music when the royalties paid to the song artist go up? Increase in costs. Downloaded Music P Q S D P Q S1 P1 Q1

27. Your market is: The U.S. goes through a boom economy, what happens to the market for steak? Increase in incomes— Normal goods. Steak P Q S D P Q D1 P1 Q1

28. Your market is: The price of milk doubles; what happens to the market for cereal? Price of related product— complement. Cereal P Q S D P Q D1 P1 Q1

29. Your market is: U.S. automakers use robots to produce their cars; what happens to the market for foreign automobiles? Price of related product— substitute. Foreign autos P Q S D P Q D1 P1 Q1

30. Your market is: The price of airline tickets doubles, what happens to the market for bus tickets? Increase in price of related product— Substitute Bus Tickets P Q S D P Q D1 P1 Q1

31. Shifts in both Demand and Supply Curves

32. P Q S D P Q D1 P1 Q1 Increase in demand Increase in supply S Q1 Quantity will definitely increase. Price is Indeterminate It will either go up. P1

33. P S D P Q D1 P1 Q1 Increase in demand Increase in supply S Q1 Quantity will definitely increase. Price is Indeterminate It stayed the same. P1

34. P S D P Q D1 P1 Q1 Increase in demand Increase in supply S Q1 Quantity will definitely increase. Price is Indeterminate It went down. P1

35. P Q S D P Q What happens to the price and quantity if there is an increase in demand and a decrease in supply? Price definitely goes up; Quantity is indeterminate

36. P Q S D P Q What happens to the price and quantity if there is a decrease in demand and an increase in supply? Price definitely goes down; Quantity is indeterminate

37. P Q S D P Q What happens to the price and quantity if there is a decrease in demand and an decrease in supply? Price is indeterminate; Quantity will definitely decrease

38. Example 1 Gillette Shaving Company mails out millions of Fusion shaver handles to households for “free.” Show what happens to the market for the Fusion attachable razor blades? Determinant: ______________ Price: ___________ Quantity: ____________ Fusion Razor Blades

39. Example 2 Salaries of airline pilots go up while the economy goes into a recession. Show what will happen to the market for airline tickets? Determinant: ______________ Price: ___________ Quantity: ____________ Airline Tickets

40. Example 3 New technology starts to be used in producing computer chips, and at the same time, the government publishes a report that long-term exposure to computers causes long-term damage to users’ eyes. Determinant: ______________ Determinant: ____________ Price: ___________ Quantity: ____________ Computers

41. Surplus What happens when we look at a price that it is NOT the equilibrium price? P Q S D P Q QsQd Surplus: Qs > Qd P

42. Shortage Q S D P Q QdQs Shortage: Qd > Qs P