1. SUPPLY
DEMAND

2. Plot the following:
Price
Quantity Demanded P Qd $9 2 8 3 7 5 6 9

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

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

5. D Definitions: Quantity demanded--it is the amount that will be9 8 7 6 D 2 3 5 9 Q
Definitions:
Quantity demanded--it is the amount that will be
purchased at a specific P.
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. Price DOES NOT CHANGE DEMAND!!!!!!!! Price changes Quantity Demanded9 Qd
just a point on the
curve. 8 7 6 D
is the entire
curve. 2 3 5 9 Q
Price changes Quantity Demanded
Price DOES NOT CHANGE
DEMAND!!!!!!!!

7. Only one variable Qd
PRICE
PRICE DOES NOT
DEMAND!!

9. 8 GUESS HOW MANY DETERMINANTS OF DEMAND THERE ARE?
And if you don’t memorize these variables, YOU
WILL FAIL THIS CLASS!!
ARE THERE ANY QUESTIONS?

10. Eight Determinants of Demand:
1. # of consumers

11. 6
$36.95

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

15. ______Used Furniture Store
______Lazy Boy Store

16. $25

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

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

24. 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

26. 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 P’s by consumers
8. Expected future Y by consumers

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

28. SUPPLY

29. Plot the following:
Price
Quantity Supplied P Qs $6 2 7 3 8 5 9 9

30. S Qs Definitions: Quantity supplied--it is the amount that will be
is the entire
curve. Qs
just a point on the
curve. Q
Definitions:
Quantity supplied--it is the amount that will be
sold at a specific P.
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.

31. Price DOES NOT CHANGE SUPPLY!!!!!!!! Price changes Quantity Supplied S
is the entire
curve. Qs
just a point on the
curve. Q
Price changes Quantity Supplied
Price DOES NOT CHANGE
SUPPLY!!!!!!!!

33. Only one variable Qs
PRICE
PRICE DOES NOT
SUPPLY!!

34. 5 GUESS HOW MANY DETERMINANTS OF SUPPLY THERE ARE?
And if you don’t memorize these variables, YOU
WILL FAIL THIS CLASS!!
ARE THERE ANY QUESTIONS?

35. Five determinants of Supply:
1. # of suppliers
2. Costs
3. Physical Availability of Resources
4. Technology
5. Expected Future Prices by Suppliers

38. Supply
and
Demand
Questions

39. P
How did the terms
P’s and Q’s come
about? Q
In English pubs, ale is ordered by pints and quarts.
So in old England, when customers got unruly, the bartender would yell at them mind their own pints and quarts and settle down. It's where we get the phrase "mind your P's and Q's"

40. There are four steps in figuring out supply
and demand graphs:
1. DON’T THINK!
2. Which curve is affected and why?
3. Is it an increase or a decrease?
4. JUST DRAW IT!

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

42. Decrease in the price of a complement. Your market is:
What happens to the market for downloaded music
when the price of an MP3 player or Ipod goes down? P S
Decrease in
the price of
a complement. P1 P D1 D Q Q1 Q
Your market is:
Downloaded Music

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

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

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

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

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

48. You can MAKE MONEY by knowing the laws of supply and demand.

49. Major Drought
Hits Brazil

55. You can SAVE MONEY by knowing the laws of supply and demand.

57. when you know the laws of
You can tell what
PEOPLE ARE SAYING
when you know the laws of
supply and demand.

58. Lee Iacocca

60. Zona Zoo
                           

61. Zona Zoo

62. Zona Zoo

63. 2 students arrested in disturbance at UA game:
1 man Tasered; Zona Zoo seats were oversold
(Arizona Daily Star, Sep. 9--Two University of
Arizona students were arrested and one was Tasered
after being turned away from Saturday night's home
football game because UA oversold the student
section. An officer was assaulted, police said.
The UA sold 11,000 passes for 10,000 seats, a
common practice, UA officials said.
UA police will meet with the athletics department to
determine what needs to be done to prevent this
from happening in the future, Mejia said.
U of A police should meet with Reff’s ECON 200
class to determine what “needs” to be done to
prevent this from happening in the future.

64. P S
Zona Zoo P
$95 D
10,000
11,000 Q

66. Apple Inc. learned last week how harsh
upset customers can be when it lowered
the price of its $599 iPhone by $200,
angering the loyal fans who paid full
price when the trendy product was
launched in June.

67. P
$599
$399 D
1 million Q Q

68. Job losses push U.S. closer to recession; first drop in four years
Published: Saturday, September 08, 2007 P S P P1 D D1 Q1 Q Q
G & S

69. Faculty at U of A

75. Questions for Supply and Demand Homework Exercise Skip Questions 5 and 6.

76. Assume that the economy of the country of Alpha is experiencing increasing unemployment. Steak is considered a normal good in Alpha. Using the supply and demand graph illustrate the impact of the increasing unemployment on the market for steak in Alpha.

77. Assume that the economy of the country of Alpha is experiencing increasing unemployment. Hamburger is considered an inferior good in Alpha. Using the supply and demand graph illustrate the impact of the increasing unemployment on the market for hamburger in Alpha.

78. The country of Alpha experiences an increase in immigration that leads to an additional one million consumers. What will be the affect on this immigration on Grog the popular drink of Alpha. Illustrate the impact on price and output using a supply and demand graph.

79. A plague has a devastating impact on the population of Alpha
A plague has a devastating impact on the population of Alpha. Illustrate using a supply and demand graph how this will impact the market for chicken.

80. Consumer
and
Producer
Surplus

81. Area of consumer surplus Area of producer surplus $15 S $14 $13 $12
$11
$10 $9 $8 P $7
Area of producer
surplus $6 $5 $4 $3 $2 D $1 Q 8

82. Price Ceilings
and
Price Floors

83. Price Ceilings

84. P S
Pc are set
BELOW the
equilibrium
price.
$1,600 P
is the
highest price
that can be
charged in the
market. Pc D Q Q
Fair market price of apartments in NYC is $1,600
NYC has rent controls which are price ceilings. Where do you think price CEILINGS are set? BELOW or ABOVE the market price?

85. P S
$1,600 P
$1,200 Pc D Q Q
Rent controls are a price set by the government to
keep prices of apartments down. In NYC the
government sets the HIGHEST PRICE that can be
charged for a one-bedroom apartments at $1,200.
Landlords cannot charge above this price.

86. < P Anytime Qd > Qs there is a SHORTAGE in the market. S $1,600
$1,200 Pc D
< Q Q Qs Qd Q
Looking at the graph, what occurs when the price is
set BELOW the equilibrium price when a PRICE
CEILING is set?
The Quantity Demanded > the Quantity Supplied

87. This is the number
of apartments landlords
are willing to supply at
this price (Qs).
This is the number of
people willing to
rent apartments at
this price (Qd). P S
$1,600 P
$1,200 Pc D Q Q Qs
< Q Qd
This is a SHORTAGE.

88. P S
$1,600 P
$1,200 Pc D Q Q Qs
< Q Qd
_________ is looking for an apartment in NYC.

89. PRICE CEILING—THE HIGHEST PRICE THE
SELLER CAN SELL THE
PRODUCT. P S
$1,600 P
$1,200 Pc D Q Q Qs
< Q Qd

90. Garth Brooks' Concert

91. Price Floor

92. WHY? $169 $69 To fly from Chicago to Minneapolis it cost In 1975
San
Fran.
$169
Chicago
$69
Los Angeles
To fly from Los Angeles
to San Francisco it cost
WHY?

93. Roughly the same number of people were flying
This is INTERSTATE
travel.
Minneapolis
San
Fran.
This is INTRASTATE
travel. (inside the state)
$169
Chicago
$69
Los Angeles
Roughly the same number of people were flying
between these two destinations and roughly the same number of airplanes were flying these two routes. So why such a difference in the prices of these airfares? What is different between these two routes?

94. P S Pf P D Q Q
Interstate travel was regulated by the Civil
Aeronautics Board. It set the prices for flights
traveling across state lines. It set a PRICE FLOOR.
Where is a PRICE FLOOR set? Above or BELOW
the equilibrium price?
ABOVE.

95. P S Pf P D Q Q
Why is it called a price FLOOR if it is set ABOVE
the equilibrium/market price?
Because it is the LOWEST price that can be charged
by law.

96. P S
$169 Pf
$69 P
$169 D
$69 Q Q
Which route is the market price and which route
is the PRICE FLOOR?
The market price is $69, the price charged between
Los Angeles and San Francisco.
The PRICE FLOOR is $169, the price charged
between Chicago and Minneapolis.

97. $169 $69 P S Whenever there is a PRICE FLOOR the Quantity Supplied is
greater than the
Quantity Demanded.
$169 Pf
$69 P D Qd Q
< Qs Q

98. < $169 $69 Qd of seats Qs of seats P S $169 Pf A price floor
causes a
SURPLUS
in the market.
$69 P D Qd
< Q Qs Q

99. P S
$169 Pf
$69 P D Qd Q
< Qs Q
What price did the airlines charge customer flying
from Chicago to Minneapolis?
$169
If airlines couldn’t compete by price since they
all charged the same price, how did airlines compete?
Service:
Best food, bigger seats, prettiest flight
attendants.

100. Surplus of seats Airlines competed by available because
Surplus of seats
available because
of the price floor.
Airlines competed by
serving better food.
Prettiest stewardess

102. As deregulation of the airline industry took
place in 1978, what happened to the price
floor? P S
$169 Pf
$69 P D Qd Q Qs Q

103. As deregulation of the airline industry took
place in 1978, what happened to the price
floor? P S
$169 Pf
$69 P D Qd Q Qs Q
The price floor is eliminated, lowering the price to the market price. This gets rid of the surplus. People get to fly for lower prices, but the airplanes are now more crowded.

104. The government of Alpha imposes a per-unit tax on Brureff soda
The government of Alpha imposes a per-unit tax on Brureff soda. Given that Brureff has a relatively elastic demand, illustrate the impact of this tax on price and quantity using a supply and demand graph.

105. The government of Alpha imposes a per-unit tax on Brureff soda
The government of Alpha imposes a per-unit tax on Brureff soda. Given that Brureff soda has a perfectly inelastic demand, illustrate the impact of this tax on price and quantity using a supply and demand graph.

106. Coffee and cream are complementary goods
Coffee and cream are complementary goods. An unexpected period of bad weather adversely affects the coffee bean crop. Use a supply and demand graph to illustrate the affect of this bad weather on the price and quantity of coffee.

107. Coffee and cream are complementary goods
Coffee and cream are complementary goods. An unexpected period of bad weather adversely affects the coffee bean crop. Use a supply and demand graph to illustrate the affect of this bad weather on the price and quantity of cream.

108. The two favorite juice drinks in the Alpha economy are reffberry and fruitbru. Consumers enjoy both drinks but some have a slight preference for reffberry while others have a slight preference for fruitbru. The makers of reffberry have invested in new technology that increases their productivity. This technology is not yet adaptable for the production of fruitbru. Use a supply and demand graph to illustrate the impact of the new technology on the reffberry market.

109. The two favorite juice drinks in the Alpha economy are reffberry and fruitbru. Consumers enjoy both drinks but some have a slight preference for reffberry while others have a slight preference for fruitbru. The makers of reffberry have invested in new technology that increases their productivity. This technology is not yet adaptable for the production of fruitbru. Use a supply and demand graph to illustrate the impact of the new technology on the fruitbru market.

110. Gasoline powered autos and electric powered autos are substitute goods and have relatively elastic demands. Assume that the price of gasoline increases by 30 percent. Use a supply and demand graph to illustrate the impact of this increase in the price of gasoline on the market for gasoline powered autos.

111. Gasoline powered autos and electric powered autos are substitute goods and have relatively elastic demands. Assume that the price of gasoline increases by 30 percent. Use a supply and demand graph to illustrate the impact of this increase in the price of gasoline on the market for electric powered autos.

112. A major news source reports an outbreak of salmonella affects the peanut butter snacks industry. Use a supply and demand graph to illustrate the immediate impact on price and quantity of this news

113. In the past, the cost of Private University is $45,000 per year and the cost of State University is $17,000 per year. Both universities have a fixed number of seats available for the coming school year. Both schools have excellent academic reputations. A major recession occurs. Assume that both universities have tuition costs that are influenced by the number of applications they receive. Use a supply and demand graph to illustrate the impact of the recession on price and quantity for Private University.

114. In the past, the cost of Private University is $45,000 per year and the cost of State University is $17,000 per year. Both universities have a fixed number of seats available for the coming school year. Both schools have excellent academic reputations. A major recession occurs. Assume that both universities have tuition costs that are influenced by the number of applications they receive. Use a supply and demand graph to illustrate the impact of the recession on price and quantity for State University.

115. The domestic steel industry of Alpha competes with imported steel from the country of Tucumcari. Assume that the government of Tucumcari increases subsidies to its steel industry. Use a supply and demand graph to illustrate the impact of the subsidies on steel made in Tucumcari.

116. The domestic steel industry competes with imported steel from the country of Tucumcari. Assume that the government of Tucumcari increases subsidies to its steel industry. Use a supply and demand graph to illustrate the impact of the subsidies on the price and quantity of steel made in Alpha.

117. The domestic steel industry competes with imported steel from the country of Tucumcari. Assume that the government of Tucumcari increases subsidies to its steel industry. Use a supply and demand graph to illustrate the impact of the subsidies on the wage and quantity of workers in the market for steel workers in Alpha.

118. The pork industry is dominated by large corporate farms that pollute the underground water table with waste material from the slaughter of pigs. The farms ignore this pollution. Use a supply and demand analysis to illustrate the impact of this avoidance on the pork industry.

119. Assume that the favorite dating activity of teenagers is going out to dinner. The second favorite dating activity of teenagers is going out for ice cream. Assume that because of a recession there will be far fewer jobs available for teenagers this summer. Use a supply and demand graph to illustrate the impact of fewer jobs on the price and quantity of the typical dinner meal at a restaurant.

120. 21. Use a supply and demand graph to illustrate the effects on price and quantity of milk from the following simultaneous events:

121. A. The government provides additional money for college scholarships directly to high school seniors.

122. Masons take a 25% cut in pay

123. Shifts in both
Supply and Demand
What happens to Price
and what happens to
Quantity?

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

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

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

127. 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

128. 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

129. 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