andDemand P Q S1S1 D1D1 D2D2 D3D3 S3S3 S2S2 “OK, I was wrong. It is a matter of supply and demand, and now I think you da “man”.

Consumers and Producers Feel Differently About High and Low prices Producers supply more at the higher price because the opportunity cost increases if they don’t. Consumers consume less at the higher price because they now have less money to spend. Producers supply less at lower prices. Consumers consume more at the lower price because they now have more money to spend.

LAW OF SUPPLY As Price Rises… …Quantity Supplied Rises As Price Falls… …Quantity Supplied Falls A direct relationship exists between price and quantity supplied

SUPPLY DEFINED SUPPLY SCHEDULE $1 2 3 4 5 PQSQS CORN Various Amounts 5 20 35 50 60

SUPPLY DEFINED SUPPLY SCHEDULE $1 2 3 4 5 PQSQS CORN Various Amounts A Series of Possible Prices …a specified time period …other things being equal 5 20 35 50 60

5 P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

35 P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY

S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points Connect the Points GRAPHING SUPPLY

S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN What if Supply Increases? GRAPHING SUPPLY

S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 Price of Corn Quantity of Corn $5 4 3 2 1 60 50 35 20 5 PQSQS CORN 80 70 60 45 30 S’ Increase in Supply Increase in Quantity Supplied GRAPHING SUPPLY

S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN What if Supply Decreases? GRAPHING SUPPLY

S P Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN S’ 45 30 20 0 -- Decrease in Supply Decrease in Quantity Supplied GRAPHING SUPPLY

S Q o $5 $4 $3 $2 $1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN CombiningwithDemand GRAPHING SUPPLY WITH DEMAND

MARKET DEMAND & SUPPLY MARKET DEMAND & SUPPLY 7 S Q o $5 4$3 2 1 2 4 6 8 10 12 14 16 PQDQD $5 $4$3 $2 $1 2,000 4,0007,000 11,000 16,000 $5 $4$3 $2 $1 12,000 10,0007,000 4,000 1,000 D P QSQS Price of Corn Quantity of Corn CORN MARKET CORN MARKET Market Clearing Equilibrium

Shortage of Face Masks for S Shortage of Face Masks for SARS Young Hong Kong ballet dancers wear masks to protect themselves from SARS. 770 people died from this disease.

So What to use if there is a shortage?

Market Supply Curve Market Supply Curve QS of Crude Oil QS 1 S “ParticularPrice” $45 $11 $6 $20 $25 QS 2 QS 3 QS 4 QS 5 Price

And why is talk so cheap? Supply is excessive. Cut Supply & you will increase demand.

DETERMINANTS [Shifters] OF SUPPLY Cost of Inputs1. Cost of Inputs [ wages & raw materials ] Increase in wages (increases/decreases) supply. Ex: A decrease in the price of computer chips (increases/decreases) the supply of computers. AS3 AS1 AS2 P Supply P S1 S2S1 S2S1 S2S1 S2

Technological Improvement 2. Technological Improvement increases “S”. This lowers production costs & increases “S”. Ex: Suppose a new milking machine called “The Invisible Hand” “The Invisible Hand” has a very soothing effect on cows; cows find the new machine “udderly” so “udderly” delightful that they produce 30% more milk 30% more milk. This technological advance shift to the right will cause a shift to the right. “Can’t wait till milking time.”

fits each cow’s body The cow floats on its own pocket of water, as the water bed fits each cow’s body. “cool in the summer and warm in the winter.” They are “cool in the summer and warm in the winter.” They last 15-20 years. Cost is $150.00. more comfortable By conforming to the shape of the cows, the beds give the cows a more comfortable reduce wear and tearprevent swelling and rest. They reduce wear and tear on the cows’ joints and prevent swelling and burning burning of hocks (ankles). first onesfill those The first ones who come back from the milking parlor fill those water bed stalls first. The other late-arriving cows say, Technological Breakthrough – Cow Waterbeds Technological Breakthrough – Cow Waterbeds “500 gallons of blood have to circulate thru a cow’s udder to produce nutrients for one gallon of milk.” “Mooooooovvvvvveeeeee over, give me that water bed.” Waterbedsforcows.com

3. Number of Sellers If more firms enter an industry, the supply curve will shift to the (left/right). When the American Basketball League began play in 1968, there was a (bigger/smaller) supply of basketball games each week. A new professional football league will (increase/decrease) the supply of football games. AS 3 AS 1 AS 2

Dallas Chaparrals I’m going for “3”. Bigger Supply of Basketball Games in 1968 with the ABA “Bigger supply of basketball games every week”

E xpectations about Future Price 4. E xpectations about Future Price expect If oil p roducers expect future oil prices to decline, they will (increase/decrease) current production. AS 3 AS 1 AS 2 Supply Oil Prices Expected to decrease P

5. Subsidies – free money from “G” Taxes 6. Taxes – take away business profits and decrease supply. Businesses have their taxes increased which moves the supply curve to the (left/right). Free money from the government (subsidies) induces suppliers to supply more.

DETERMINANTS OF SUPPLY Cost of Inputs Productivity Taxes & Subsidies Technology Price Expectations Number of Sellers

D2D2D2D2 With Much Higher Gas Prices, What Happens In The SUV/RV Market S1S1S1S1 P1P1P1P1 P2P2P2P2 Q2Q2Q2Q2 Q1Q1Q1Q1 D1D1D1D1 8 MPG QS QD

rise fallstay the same Decide if the price of oranges is going to rise, fall, or stay the same. ___1. All of the growers meet & agree to grow fewer oranges next year. ___2. Growers plant more acres of orange trees. ___3. Orange growers run an advertising campaign promoting oranges as a symbol of good health. ___4. One grower [out of thousands] retires and stops growing oranges. ___5. Growers develop a bigger and better tasting orange. ___6. Orange growers are struck by the disease-causing Mediterranean fruit fly. Quantity of Oranges R F R S R R Juicy “Orange” Prices

“ Increase in D ” “Decrease in D ” “Increase in S ” “Decrease in S ” incomeused cars ___1. Decrease in income on market for used cars. incomenew cars ___2. Decrease in income on market for new cars. Consumer expectationsprice decrease ___3. Consumer expectations about a price decrease. Producer expectations price decrease ___4. Producer expectations about a price decrease. # of producerscomputers ___5. Increase in # of producers on the market for computers. # of consumersused cars ___6. Increase in # of consumers on the market for used cars. # of consumersnew cars ___7. Increase in # of consumers on the market for new cars. moviespopcorn ___8. Decrease in the price of movies upon the market for popcorn. business taxescomputers ___9. Decrease in business taxes on the market for computers. Consumer expectationsapples ___10. Consumer expectations of a shortage of apples. resource costcomputers ___11. Decrease in resource cost on market for computers. wheatcorn ___12. Increase in price of wheat upon market for corn. Consumer expectations ___13. Consumer expectations of a shortage of cell phones. Producers expectations ___14. Producers expectations about a price increase. incomeiPods ___15. Increase in income on the market for iPods. B B C C A A C A D C A A A A D D 1 D 2 (A) (B) (C) (D) D1D1D1D1 D2D2D2D2 S S S1S1S1S1 S1S1S1S1 S2S2S2S2 S2S2S2S2 D D TIMER RATNEST P2P2P2P2 P1P1P1P1 P1P1P1P1 P2P2P2P2 P1P1P1P1 P2 P2P2P2P2 P1P1P1P1 QD 1 QD 2 QD 2 QD1 QD 1 QD2 QD 2 QD1

NS 41-53 41. Supply – quantities producers offer at each (technique/price). priceQS 42. The relationship between price and QS is (direct/inverse) and the priceQD relationship between price and QD is (direct/inverse) or opposite. “law of supply” 43. The “law of supply” indicates that producers will offer (less/more) at higher prices. moving along a stable supply/demand curve 44. In moving along a stable supply/demand curve, (income/price) is not held constant. very responsive to price 45. (Inelasic/Elastic) supply-when QS is very responsive to price. little impact on QS 46. (Inelastic/Elastic) supply-when a change in price has little impact on QS. elastic supply 47. The 3-item test for elastic supply is: the item can be made quickly, it tends to be cheap, & it can be produced by (skilled/unskilled) workers. inelastic supply 48. The 3-item test for inelastic supply is: the item cannot be made quickly, it tends to be expensive, & (skilled/unskilled) workers. inelastic supply 49. An example of inelastic supply is (posters/computers/T-shirts). elastic supply 50. An example of elastic supply is (HDTV/computers/T-shirts). elastic supply 51. The supply curve for elastic supply is more (flat/vertical). inelastic supply 52. The supply curve for inelastic supply is more (flat/vertical). cattle feed beef 53. A decrease in the price of cattle feed will cause the (D/S) curve for beef to shift.

Supply NS 61-64 Supply NS 61-64 Bushels DemandedCorn PriceBushels Supplied 26 $546 32 $441 37 $337 43 $232 48 $129 Equilibrium price 61. Equilibrium price will be ($1/$2/$3/$4/$5). price$2 62. If the price in this market were $2, farmers (would/would not) be able to sell all their corn. price were initially $5 63. If the price were initially $5, we would expect the price of corn supplied to (increase/decrease) as a result of the price change.

incomeinferior good 74. A decrease in income, if “X” is an inferior good would (increase/decrease) (demand/supply), (increase/decrease) price, and (increase/decrease) quantity. number of consumers 75. A decrease in the number of consumers for product “X” will (increase/decrease) (demand/supply), (increase/decrease) price, and (increase/decrease) quantity. Producer expectations“X” 76. Producer expectations that the price of “X” will decrease sharply in the future will (incr/decr) (demand/supply), (incr/decr) price, & (incr/decr) quantity. substitute“X” 77. A decrease in the price of a product which is a substitute to “X” will (incr/decr) (supply/demand), (incr/decr) price, (incr/decr) quantity. irrigation equipmentresource cost 68. Increase in the price of irrigation equipment (resource cost) upon the market wheat for wheat is illustrated by diagram (A/B/C/D). incomesspam 69. Increase in incomes upon the market for spam is illustrated by diagram (A/B/C/D). Subsidy 70. Subsidy for cancer research being taken away is illustrated by diagram (A/B/C/D). M & M s S nickers 71. D ecrease in the price of M & M s upon the market for S nickers is illustrated by (A/B/C/D). worker wages 72. Decrease in worker wages on the market for textiles is illustrated by (A/B/C/D). camerasfilm 73. I ncrease in the price of cameras upon the market for film is illustrated by (A/B/C/D). NS 68-77

NS 78 - 81 S2S2S2S2 P2P2 E2E2 D2D2 S2S2 D2D2 E2E2 S2S2 Q2Q2 D2D2 S2S2 Q2Q2 demand increasessupply decreases 78. If demand increases and supply decreases, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). demand decreasessupply increases 79. If demand decreases and supply increases, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). supply and demand curves both increase 80. If the supply and demand curves both increase, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). demand and supply curves both decrease 81. If demand and supply curves both decrease, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). E2E2E2E2 indeterminateincrease *Staying the same means indeterminate, that is, the quantity could increase, decreasestay the samemagnitude of the shifts decrease, or stay the same, depending on the magnitude of the shifts.

5 P Q o $5 $4 $3 $2 $1 10 20 30 40 50 60 70 80 $54321$54321 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY [Change in QS]

P Q o $5 $4 $3 $2 $1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY [Change in QS]

Q o $5 $4 $3 $2 $1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points GRAPHING SUPPLY [Change in price, so “Change in QS”]

S Q o $5 $4 $3 $2 $1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN Plot the Points Connect the Points GRAPHING SUPPLY [Change in price, so “Change in QS”]

S Q o $5 $4 $3 $2 $1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN What if Supply Increases? GRAPHING SUPPLY

S1S1S1S1 Q o $5 $4 $3 $2 $1 4060 10 20 30 40 50 60 70 80 Price of Corn Quantity of Corn $5 4 3 2 1 62 52 40 25 10 PQSQS CORN 8272604530 S2S2S2S2 IncreaseinSupply Increase in QS GRAPHING SUPPLY [Change in S]

S Q o $5 4 3 2 1 10 20 30 40 50 60 70 80 $5 4 3 2 1 60 50 35 20 5 PQSQS Price of Corn Quantity of Corn CORN What if Supply Decreases? GRAPHING SUPPLY [Change in S]

S1S1S1S1 Q o $5 $4 $3 $2 $1 2040 10 20 30 40 50 60 70 80 $5 4 3 2 1 63 54 40 25 9 PQSQS Price of Corn Quantity of Corn CORN S2S2S2S2 463520 3 -- -- DecreaseinSupply Decrease in QS GRAPHING SUPPLY [Change in S]

Price Floor minimum pricesurpluses Price Floor – minimum price [creates surpluses]. $2.50 S P Q 0 1424 14 19 24 D Surplus Such as: Minimum Wage Agricultural Price Supports The price has to be IN IN the house. It can’t be below the floor. Some call agricultural price “ udder insanity.” supports “ udder insanity.” Price Floor-minimum price QS exceeds QD Millions of gallons per month 1.90 Price per gallon Equilibrium price for milk

Price Ceilingmaximum priceshortages Price Ceiling - maximum price [creates shortages] 7 S P o D Shortage Such as: Rent controls in NYC Wartime price controls Rock concert prices Super Bowl tickets The price has to be in in the house. It can’t be above the ceiling. Super Bowl T icket P rices E-Bay E-Bay 1967 - $12.00 2004 - $500$2-6,000 2004 - $500 $2-6,000 Reliant Stadium NFL could raise the price & make another $150 M but the average man couldn’t attend. 2.5 3 Price Ceiling-maximum price QD exceeds QS Millions of Dwellings Rented $2,000 1,200 3.5 NYC Rent Controls

Broccoli “ Suppliers produce smaller/ larger quantities at each price.” “Substitutes in production” I only have 200 acres S 3 S 1S2 S 3 S 1 S2 Change in “Supply” [Curve] RATNEST 1. “Non-price change” [RATNEST] 2. Whole supply curve “shifts” [There was a QS change but it was not caused by a change in price] S Corn S1S1S1S1 P S2S2S2S2 QS1 QS2 Alternative Output Price Change [INVERSE] QS3 QS1 QS2 P2P1P2P1 P S1S2S1 S2S1S2S1 S2 [new football league- bigger “S ” of games ] Don’t confuse these two with Chg in QS. “Supply Shifters” [RATNEST] R INVERSE 1. R esource Cost [wages /raw materials ] [INVERSE] A INVERSE 2. A lternative Output Prices [INVERSE] TDIRECT 3. Technology [DIRECT] N DIRECT 4. N umber of Suppliers [DIRECT] E INVERSE 5. E xpectations [about future price] [INVERSE] S DIRECT 6. S ubsidies [DIRECT] T INVERSE 7. T axes [INVERSE]

Four Possibilities D1D1D1D1 D1D1D1D1 S A B C D Increase in supply of gas Slide Rule After introduction of calculator S D1D1D1D1 D2D2D2D2[TIMER][RATNEST] “D” for flag after 9/11 “Increase in Demand” “Decrease in Demand” “Increase in Supply” “Decrease in Suply” Decr in “S” of gas D P Q D P Q S QP P S Q D S1S1S1S1 D S1S1S1S1 S2S2S2S2 $1.85 $1.00 Q 1 Q 2 Q 1 Q 2 Q 2 Q 1 $1.85 S1S1S1S1 $1.00 P2P2P2P2 P1P1P1P1 P1P1P1P1 P2P2P2P2 Q 1 Q 2 Q 2 Q 1 After “Looking For Nemo”

Banana Supply & Demand Q o D1D1D1D1 Quantity Price (per pound) S1S1S1S1 S2S2S2S2 P Q1Q1Q1Q1 Q2Q2Q2Q2 P1P1P1P1 P2P2P2P2 Crop Freezing Damage…

American Flags Q o D1D1D1D1 Price (per flag) S1S1 P Q1Q1 Q2Q2 P1P1P1P1 P2P2P2P2 D2D2D2D2 Patriotism Surge after 9/11… Patriotism Surge after 9/11…

Apple’s iPod ___7. Increase in the price of Apple’s iPod on the Dell’s Digital Jukebox market for Dell’s Digital Jukebox. tealemon ___8. Increase in the price of tea on the market for lemon. taxesSUVs ___9. Increase in business taxes on the market for SUVs. Consumers expect cell phones ___10. Consumers expect a shortage of cell phones. “TIMER”[D] or “RATNEST”[S] incomecamcorders ___1. Increase in income on the market for camcorders. # of consumers ___2. Increase in # of consumers on market for computers. Producer expectations ___3. Producer expectations about a price increase. Consumer expectations ___4. Consumer expectations about a price increase. producers ___5. Increase in # of producers on market for digital cameras. resource cost ___6. Increase in resource cost on the market for bagels. A A D A C D A B D A

incomesteak is anormal good 1.An increase in income if steak is a normal good would: a. increase D, increase P, & increase Q.b. increase D, increase P, & decrease Q. c. increase S, increase P, & increase Q.d. decrease D, increase P, & increase Q. decrease in the price of resources 2. A decrease in the price of resources used to produce iPods will: a. increase S, increase P, & increase Q.b. increase D, increase P, & increase Q. c. decrease S, decrease P, & decrease Q.d. do none of the above buttersubstitutemargarine 3. Decrease in price of butter on the market for the substitute margarine: a. increase D, increase P, & decrease Q.b. decrease D, decrease P, & increase Q. c. decrease D, increase P, & decrease Q.d. do none of the above improvement in technology 4. An improvement in technology used to produce DVDs will: a. decrease S, increase P, & decrease Q.b. decrease S, increase P, & increase Q. c. increase S, decrease P, & increase Q.d. decrease D, decrease P, & decrease Q. decrease in the number of consumers 5. A decrease in the number of consumers for Fuzzy Wuzzies: a. decrease S, decrease P, & decrease Q.b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q.d. decrease D, decrease P, & increase Q. Effect of Changes in “D” or “S” on Price and Quantity E1E1E1E1 E2E2E2E2 E1E1E1E1 E2E2E2E2 E1E1E1E1 E2E2E2E2 E2E2E2E2 E1E1E1E1

taste 6. A decrease in taste for Fuzzy Wuzzies would: a. increase D, increase P, & increase Q.b. decrease D, increase P, & decrease Q. c. increase S, increase P, & increase Q.d. decrease D, decrease P, & decrease Q. number of firms 7. A reduction in the number of firms producing computers: a. increase S, increase P, & increase Q.b. increase D, increase P, & increase Q. c. decrease S, increase P, & decrease Q.d. decrease S, decrease P, decrease Q. complement 8. An increase in the price of pancakes, a complement for syrup would: a. increase D, increase P, & decrease Q.b. decrease D, decrease P, & increase Q. c. decrease D, decrease P, & decrease Q.d. do none of the above income 9. A decrease in income upon the market for spam would: a. decrease S, increase P, & decrease Q.b. decrease S, increase P, & increase Q. c. increase D, decrease P, & increase Q.d. increase D, increase P, & increase Q. Consumer expectations 10. Consumer expectations that the price of PSP will increase by 50% in the future will: a. decrease S, decrease P, & decrease Q.b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q.d. decrease D, decrease P, & increase Q. Effect of Changes in “D” or “S” on Price and Quantity

C A C A C B D B d. increase in price of computers c. decrease in # of consumers

“ Increase in D ” “Decrease in D ” “Increase in S ” “Decrease in S ” computers software. ___1. Increase in the price of computers on the market for software. auto worker wagesautos ___2. Decrease in auto worker wages on the market for autos. PepsiCoke ___3. Decrease in the price Pepsi on the market for Coke. D ecrease in the price of computer chips on the computer market ___4. D ecrease in the price of computer chips on the computer market. fertilizerwheat ___5. Increase in price of fertilizer on the market for wheat. subsidies AIDS research ___6. D ecrease in government subsidies on the market for AIDS research. incomesused clothing ___7. Increase in incomes on the market for used clothing. new professional soccer ___8. A new professional soccer league is formed soccer games upon the market for soccer games. Producer expectations ___9. Producer expectations that the price of orange juice will increase 30% in 3 weeks? Consumer expectations ___10. Consumer expectations that the price of orange juice will increase 30% in 3 weeks? computersmonitors ___11. Decrease in price of computers upon market for monitors? B C C D D C D A B B D 1 D 2 (A) (B) (C) (D) D1D1D1D1 D2D2D2D2 S S S1S1S1S1 S1S1S1S1 S2S2S2S2 S2S2S2S2 DD TIMER RATNEST P P PP A

S & D Quiz 1 for “Milk” S & D Quiz 1 for “Milk” increase in wages 1. M ilk workers become unionized and win an increase in wages. decrease in price of the alternative output cheese 2. A decrease in price of the alternative output cheese affect milk supply. taste 3. A negative report on the dangers of cholesterol affect the taste for milk. demand increase of 10 million consumers 4. Milk demand is affected by an increase of 10 million consumers. Cookiesa complement of milk 5. Cookies, a complement of milk, increase in demand for milk price and therefore affect the demand for milk. technological breakthrough 6. A technological breakthrough is discovered by a BL student who discovers that cows supply more milk if Ave Maria is playing during milking. Milk producers expectmilkprices to decrease 25% 7. Milk producers expect milk prices to decrease 25% in one week. milk 8. Due to a deadly cow plague (caused by too much cow belly dancing ), milk availabilityis expected availability is expected to shrink by 50% & impact the current demand for milk. Subsidies 9. Subsidies for milk production are increased by 20 cents per gallon. price of orange juicesubstitute20% 10. The price of orange juice, a substitute for milk, increased by 20%. [ “ + or – ” ; “ D ” or “ S ” ] 5 Demand Shifters7 Supply Shifters 5 Demand Shifters 7 Supply Shifters 1. Taste [direct] 1. Resource cost [wages/raw materials – INVERSE] 2. Income[ normal -direct; inferior -INVERSE] 2. Alternative output price changes [INVERSE] 3. Market size (# of consumers–direct] 3. Technology [ direct] 4. E xpectations (Consumer) availability-INVERSE] 4. Number of suppliers [direct] future income-direct; future price-direct; 5. E xpectations [producer] about future price[INVERSE] future income-direct; future price-direct; 5. E xpectations [producer] about future price[INVERSE] 5. Related good price changes 6. Subsidies [direct] [ substitutes -direct; complements -INVERSE] 7. Taxes [INVERSE] [ substitutes -direct; complements -INVERSE] 7. Taxes [INVERSE] 1. –S 2. +S 3. –D 4. +D 5. –D 6. +S 7. +S 8. +D 9. +S 10. +D [How does each situation shift the “D” or “S” curve for milk?] I love to listen to Ave Maria.

S & D Quiz 2 for “Milk” S & D Quiz 2 for “Milk” producers hire fewer union workers, decreasing resource cost 1. Milk producers hire fewer union workers, decreasing resource cost. increase in price of the alternative output cheese 2. An increase in price of the alternative output cheese affect milk supply. taste 3. A positive report on the benefits of milk affect the taste for milk. demanddecrease of 20 million consumers 4. Milk demand is affected by a decrease of 20 million consumers. Cookies a complement of milk 5. Cookies, a complement of milk, decrease demand for milk in price & therefore affect the demand for milk. technological breakthrough 6. A technological breakthrough is discovered by a BL student who discovers that cows supply more milk if Enya is singing during milking. Milk producers expectmilkprices to increase 25% 7. Milk producers expect milk prices to increase 25% in two weeks. milk 8. Due to a deadly cow plague (caused by too much cow belly dancing ), milk availabilityis expected availability is expected to shrink by 60% & impact the current demand for milk. Subsidies 9. Subsidies for milk production are decreased by 20 cents per gallon. price of orange juicesubstitute20% 10. The price of orange juice, a substitute for milk, decreased by 20%. [“+ or –”; “D” or “S”] 5 Demand Shifters7 Supply Shifters 5 Demand Shifters 7 Supply Shifters 1. Taste [direct] 1. Resource cost [wages/raw materials – INVERSE] 2. Income[ normal -direct; inferior -INVERSE] 2. Alternative output price changes [INVERSE] 3. Market size (# of consumers–direct] 3. Technology [ direct] 4. E xpectations (Consumer) availability-INVERSE] 4. Number of suppliers [direct] future income-direct; future price-direct; 5. E xpectations [producer] about future price[INVERSE] future income-direct; future price-direct; 5. E xpectations [producer] about future price[INVERSE] 5. Related good price changes 6. Subsidies [direct] [ substitutes -direct; complements -INVERSE] 7. Taxes [INVERSE] [ substitutes -direct; complements -INVERSE] 7. Taxes [INVERSE] 1. +S 2. -S 3. +D 4. -D 5. +D 6. +S 7. -S 8. +D 9. -S 10. -D [How does each situation shift the “D” or “S” curve for milk?] I love Enya.

Review for Demand and Supply “You da man”

The Harley Hog Circular Flow Product Market Resource Market Businesses Consumer Expenditures Land, Labor, Capital, & Entrepreneur Rent, Wages, Interest, & Profits Households

The “Gangsta Car ” The “Gangsta Car ” Businesse s Product Market Resource Market Which flow represents? A. Consumer expenditures? B. Goods and services? C. Land, labor, capital, and entrepreneurial ability? entrepreneurial ability? D. Rent, wages, interest, and profits? and profits? Households 3 4 2 1 4 3 “Gangsta” cars Labor for “Gangsta Cars” Chrysler300 2 Chrysler Plant 1 Circular Flow

The Circular-Flow Diagram Households Product Market Resource Market 1 2 3 4 Which Flow Represents? A. Goods/services? B. Consumer expenditures? C. Land, labor, capital and entrepreneurial ability? entrepreneurial ability? D. Rent, wages, interest, and profits? and profits? B usinesses $ $ $ $ Labor Fuzzy Wuzzy 4 3 1 2

unemploymentrecession 40. At what letter is there unemployment [recession]? 41. What letters represent resources being used in their most productive manner most productive manner? [full employment, full production, and best available technology] improvement in technology 42. What letter represents an improvement in technology, new PPC therefore a new PPC frontier line? “line of increasing cost”? 43. The (straight line/curve) illustrates the “line of increasing cost”? “law of constant cost.” 44. The (straight line/curve) illustrates the “law of constant cost.” most economic growth in 45. At what letter would there be the most economic growth in the future the future if a country were producing there now? opportunity cost“C” to “D”; 46. What is the opportunity cost when moving from “C” to “D”; E to BF to D E to B; & do we have to give anything up when moving from F to D? F A,B,C,D,E G A Capital Consumer no A B C G D E CAPITALGOODS Consumer Goods F More or better resources or better technology

Law of Demand [Change in QD ] QD 2 QD 1 PriceQD Inverse relationshi p $250.00 D Reasons For Downsloping “D” Curve Income Effect 1. Income Effect –current buyers buy more. Substitution Effect 2. Substitution Effect– new buyers now purchase. Diminishing MarginalUtility 3. Diminishing Marginal Utility - because buyers of successive units receive less marginal utility, they will buy more only when the price is lowered. Change in QD Price change 1. Price change Movement 2. Movement [up/down the demand curve] Point to point 3. Point to point [along the curve] “D”“whole curve”.all prices “D” refers to the “whole curve”. [“all prices”] “QD”“point on the curve” “QD” refers to a “point on the curve” “particular price.” based on a “particular price.” PSP

LAW OF SUPPLY As Price increases - As Price increases …Q S also increases …Q S also increases - As Price decreases …QS also decreases …QS also decreases Directprice QS Direct relationship between price & QS P2 P1 QS1QS2 QS1 QS2 S P1 P2 QS2QS1 QS2 QS1 S

Tdirect Tastes [direct] I Incomes directinverse -Normal [direct] & Inferior[inverse] Mdirect Market Size(# of consumers) [direct] E Expectations of consumers about direct [future price-direct; future directinverse income [ direct ]; and availability [inverse] R Related Good Price Changes directinverse [substitutes-direct; complements-inverse] Helmets P “TIMER”

“Demand Shifters” [TIMER] 1. Taste [direct] 2. Income [normal-direct] [inferior-inverse] 3. Market Size [number of consumers-direct] 4. Expectations [of consumers about future price-direct, about future availability-inverse, or about future income–direct. about future availability-inverse, or about future income–direct. 5. Related Good Prices [substitutes-direct] [complements-inverse] Changes in “D” [curve] 1. Non price change [“TIMER”] 2. Whole “D” curve shifts [There is a change in “QD” but it is not caused by a change in “price.” QD-”singe price”D-”all prices” [QD-”singe price”; D-”all prices”] Complement [inverse] Substitute [Direct] Butter Bread Bagels P D3D3D3D3 D1D1D1D1 D3D3D3D3 QD 3 QD 1 QD 2 D1D1D1D1 D2D2D2D2 P P1P1P1P1 QD 1 QD 2 P2P2 D1D1D1D1 D2D2D2D2 D P

Q o $5 4 3 2 1 PQDQD $5 4 3 2 1 10 20 35 55 80 Price Quantity of Corn CORN Plot the Points 10 20 30 40 50 60 70 80 GRAPHING DEMAND [“Change in QD”]

$100 $90 $80 $70 $60$50 $40 $30 $20 $10 0 406075120 160 180200 20 40 60 75 100 120 140 160 180 200 220 Quantity (units of any good or service) 70 175 120 =120 QD=QS E QD QS QD QS QS QD QS QD D S Price Floor Surplus Price Ceiling Shortage DollarPrice If QS>QD; Price Decreases If QS<QD; Price Increases If QD=QS; Price Stays Same Law of Supply and Demand

. Broccoli “ Suppliers produce smaller/ larger quantities at each price.” “Substitutes in production” I only have 200 acres S 3 S 1S2 S 3 S 1 S2 Change in “Supply” [Curve] RATNEST 1. “Non-price change” [RATNEST] 2. Whole supply curve “shifts” [There was a QS change but it was not caused by a change in price] S Corn S1S1S1S1 P S2S2S2S2 QS1 QS2 Alternative Output Price Change [INVERSE] QS 1 QS 1 P2P1P2P1 P S1S2S1 S2S1S2S1 S2 [new football league- bigger “S ” of games ] Don’t confuse these two with Chg in QS. “Supply Shifters” [RATNEST] R INVERSE 1. R esource Cost [wages /raw materials ] [INVERSE] A INVERSE 2. A lternative Output Prices [INVERSE] TDIRECT 3. Technology [DIRECT] N DIRECT 4. N umber of Suppliers [DIRECT] E INVERSE 5. E xpectations [about future price] [INVERSE] S DIRECT 6. S ubsidies [DIRECT] T INVERSE 7. T axes [INVERSE] QS 2 QS 3

Four Possibilities D1D1D1D1 D1D1D1D1 S A B C D Increase in supply of gas Slide Rule After introduction of calculator S D1D1D1D1 D2D2D2D2[TIMER][RATNEST] “D” for flag after 9/11 “Increase in Demand” “Decrease in Demand” “Increase in Supply” “Decrease in Suply” Decr in “S” of gas D P Q D P Q S QP P S Q D S1S1S1S1 D S1S1S1S1 S2S2S2S2 $1.85 $1.00 Q 1 Q 2 Q 1 Q 2 Q 2 Q 1 $1.85 S1S1S1S1 $1.00 P2P2P2P2 P1P1P1P1 P1P1P1P1 P2P2P2P2 Q 1 Q 2 Q 2 Q 1 After “Looking For Nemo”

“Change in ” “Change in Demand” “Chg in Supply” Non-Price Change Whole Curve Shifts [What is not held constant in these 4?] Price Change Point to Point Movement [INVERSE][INVERSE][INVERSE][INVERSE] [DIRECT] P1P1P2P2P1P1P2P2 P2P2P1P1P2P2P1P1 QD 1 QD 2 D S QD 2 QD 1 QS 1 QS 2 QS 2 QS 1 P1P1P2P2P1P1P2P2 P 2 P1 S D1D1 D2D2D2D2 D1D1D1D1 D2D2D2D2 S1S1S1S1 S2S2 S2S2S2S2 S1S1S1S1 Q 1 Q 2 Q 2 Q 1 Q 1 Q 2 Q 2 Q 1

SubstitutesComplements Price Changes for Substitutes & Complements Subs - Direct Dr Pepper Complements - Inverse Coke P1P1P2P2P1P1P2P2 P1P1P2P2P1P1P2P2 QD 1 QD 2 D D D1D1D1D1 D2 D1D1D1D1 D2D2D2D2 Alternative Outputs - I nverse S S1S1 S2S2S2S2 P1P1P1P1 P2P2P2P2 P QS 2 QS 1 Broccoli Corn Helmets Motorcycles

“ Increase in D ” “Decrease in D ” “Increase in S ” “Decrease in S ” N intendo DS DS games. ___1. Decrease in the price of N intendo DS on the market for DS games. iPod worker wagesiPods ___2. Increase in iPod worker wages on the market for iPods. Dr. PepperCoke ___3. Increase in the price Dr. Pepper on the market for Coke. In crease in the price of computer chips on the computer market ___4. In crease in the price of computer chips on the computer market. fertilizerwheat ___5. Decrease in price of fertilizer on the market for wheat. subsidies AIDS research ___6. In crease in government subsidies on the market for AIDS research. incomesused clothing ___7. Decrease in incomes on the market for used clothing. New professional hockey ___8. New professional hockey league is formed hockey games upon the market for hockey games. Producer expectations ___9. Producer expectations that the price of orange juice will decrease 30% in 3 weeks? Consumer expectations ___10. Consumer expectations that the price of orange juice will decrease 30% in 3 weeks? computersmonitors ___11. Decrease in price of computers upon market for monitors? A D D C C C C B A A D 1 D 2 (A) (B) (C) (D) D1D1D1D1 D2D2D2D2 S S S1S1S1S1 S1S1S1S1 S2S2S2S2 S2S2S2S2 DD TIMER RATNEST P P PP A

incomespam 1.A decrease in income if spam is an inferior good whould: a. increase D, increase P, & increase Q.b. increase D, increase P, & decrease Q. c. increase S, increase P, & increase Q.d. decrease D, increase P, & increase Q. increase in the price of resources 2. An increase in the price of resources used to produce DVD Players will: a. increase S, increase P, & increase Q.b. increase D, increase P, & increase Q. c. decrease S, decrease P, & decrease Q.d. decrease S, increase P, & decrease Q. buttermargarine 3. Decrease in price of butter on the market for the substitute margarine: a. increase D, increase P, & decrease Q.b. decrease D, decrease P, & increase Q. c. decrease D, increase P, & decrease Q.d. do none of the above improvement in technology 4. An improvement in technology used to produce DVDs will: a. decrease S, increase P, & decrease Q.b. decrease S, increase P, & increase Q. c. increase S, decrease P, & increase Q.d. decrease D, decrease P, & decrease Q. increase in the number of consumers 5. An increase in the number of consumers for Fuzzy Wuzzies: a. decrease S, decrease P, & decrease Q.b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q.d. decrease D, decrease P, & increase Q. Effect of Changes in “D” or “S” on Price and Quantity

taste 6. An increase in taste for Fuzzy Wuzzies would: a. increase D, increase P, & increase Q.b. decrease D, increase P, & decrease Q. c. increase S, increase P, & increase Q.d. decrease D, decrease P, & decrease Q. number of firms 7. A reduction in the number of firms producing computers: a. increase S, increase P, & increase Q.b. increase D, increase P, & increase Q. c. decrease S, increase P, & decrease Q.d. decrease S, decrease P, decrease Q. pancakescomplementsyrup 8. A decrease in the price of pancakes, a complement for syrup would: a. increase D, increase P, & decrease Q.b. decrease D, decrease P, & increase Q. c. Increase D, increase P, & increase Q.d. do none of the above incomeused cars 9. An increase in income upon the market for used cars would: a. decrease S, increase P, & decrease Q.b. decrease S, increase P, & increase Q. c. increase D, decrease P, & increase Q.d. decrease D, d ecrease P, & decrease Q. Consumer expectations 10. Consumer expectations that the price of Nintendo DS will increase by 50% in the future will: a. decrease S, decrease P, & decrease Q.b. increase D, increase P, & increase Q. c. decrease D, decrease P, & decrease Q.d. decrease D, decrease P, & increase Q. Effect of Changes in “D” or “S” on Price and Quantity

B D C B D A C A d. increase in price of Sevens c. increase in # of consumers 7 Revised of PSPs for PSPs

Practice “Supply Quiz” “decrease in supply” 1. Which would cause a “decrease in supply” for MP3 Players? a. decrease in the price of MP3s b. increase in the price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase “decrease in QS” 2. Which would cause a “decrease in QS” for MP3s? a. decrease in the price of MP3s b. increase in the price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase “increase in supply” 3. Which would cause an “increase in supply” for MP3 Players? a. decrease in the price of MP3 Players b. increase in the price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase “increase in QS” 4. Which would cause an “increase in QS” for MP3s? a. decrease in price of MP3s b. increase in price of MP3s c. decrease in MP3 resource cost d. producer expectations of a price increase 5. An increase in the price of asparagus will (increase/decrease) alternative output the supply of the alternative output peas. “computer chips” 6. A 50% decrease in the price of “computer chips” will “computers”. (increase/decrease) the (supply/QS) for “computers”. “increase in supply” 7. Which would cause an “increase in supply” for MP3 Players? a. increase in wages for MP3 Player workers. b. subsidies($100 per computer) are given to MP3 Player companies. c. subsidies for MP3 Player makers being taken away.

andDemand P Q S1S1 D1D1 D2D2 D3D3 S3S3 S2S2 “OK, I was wrong. It is a matter of supply and demand, and now I think you da “man”.

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andDemand P Q S1S1 D1D1 D2D2 D3D3 S3S3 S2S2 “OK, I was wrong. It is a matter of supply and demand, and now I think you da “man”.

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Presentation on theme: "andDemand P Q S1S1 D1D1 D2D2 D3D3 S3S3 S2S2 “OK, I was wrong. It is a matter of supply and demand, and now I think you da “man”."— Presentation transcript:

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