1. The Market Never Stands Still

2. RIPEN and GRENT “Determinants of Supply and Demand”

3. Bell ringer, 9.14
Please write down the three questions below. Use the chart on the next slide to answer. Thanks.
According to the schedule and the graph, what is the equilibrium price and quantity demanded in this example?
Priced at $19, what is the surplus / shortage?
If there is a shortage of -800, then what was the price of the DVDs?

4. Today’s Objective:
SSEMI3 The student will explain how markets, prices, and competition influence economic behavior.
a. Identify and illustrate on a graph factors that cause changes in market supply and demand.
b. Explain and illustrate on a graph how price floors create surpluses and price ceilings create shortages.
c. Define price elasticity of demand and supply.

5. Determinants of Demand
Change in consumer income
Change in tastes and preferences
Change in the price of a substitute good
Change in the price of a complementary good
Change in consumers’ price expectations
Change in number of consumers in the market

6. Shifts in Demand
Demand price
Quantity of pecans per day

7. Determinants of Demand (from Cannon) (Things that shift the entire line!)P E N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases
Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases
ncome – income increases, demand increases; income decreases, demand decreases
references – preferences increase, demand increases; preferences decrease, demand decreases
xpectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases
umber of buyers – # of buyers increase, demand increases; # of buyers decrease, demand decreases

8. Determinants of Demand (from Cannon) (Things that shift the entire line!)P E N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases
Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases

9. Related goods (Complements and Substitutes)
Based on the law of demand, we know that when the price of a good rises, consumers will buy a smaller quantity of the good. Many goods have what economists call a complementary good. This is a good that is consumed with the original good. For example, peanut butter and jelly are often consumed together so they are called complementary goods. When the price of peanut butter rises, consumer respond by buying a smaller quantity of peanut butter. Since jelly is a complementary good to peanut butter, consumer buy less jelly at all prices, shifting the demand curve for jelly to the left.

11. Determinants of Demand (from Cannon) (Things that shift the entire line!)P E N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases
Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases
ncome – income increases, demand increases; income decreases, demand decreases

12. Income – income increases, demand increases; income decreases, demand decreases
When a large number of consumers in the market for a good experience a change income, the entire demand curve in that market may shift. For example, if the United States is experiencing a severe recession, a large number of consumers in the market for automobiles will experience a decrease in income as companies reduce their work force. This will cause the demand curve for automobiles to decrease, shifting it to the left. In contrast, if the United States is experiencing a major period of economic growth, employers will have to compete with one another for workers and wages of consumers will rise. Therefore, the demand for automobiles will increase, shifting the demand to the right.

15. Determinants of Demand (from Cannon) (Things that shift the entire line!)P E N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases
Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases
ncome – income increases, demand increases; income decreases, demand decreases
references – preferences increase, demand increases; preferences decrease, demand decreases

16. Preferences – preferences increase, demand increases; preferences decrease, demand decreases
When a large number of consumers experience a change in preference toward or away from a good, the demand for the good will change. For example, as more information became available and marketing campaigns targeted the obesity problem in the United States, more and more consumers began to reject high fat, high calorie foods. This change caused a decrease in demand for many fast food items, shifting the demand for certain types of fast food to the left.

19. Determinants of Demand (from Cannon) (Things that shift the entire line!)P E N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases
Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases
ncome – income increases, demand increases; income decreases, demand decreases
references – preferences increase, demand increases; preferences decrease, demand decreases
xpectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases

20. Expectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases
Sometimes, consumers predict that market prices for are going to change in the future. When consumers believe the price for a good will go lower in the future and they can delay their purchase until that time, the demand for the good will decrease now, shifting the demand curve to the left. If they believe prices will go up in the future, they will buy more of the good now before the price increase occurs, shifting the demand curve to the right. For example, during the Great Recession of , house prices in many markets around the United States fell drastically.. Consumers delayed their purchases because of an expected decrease in prices.

22. Determinants of Demand (from Cannon) (Things that shift the entire line!)P E N
elated goods (Complements and Substitutes)
Complements: if price of complement increases, demand for the other good decreases; if price of the complement decreases, demand for the other good increases
Substitutes: if price of substitute increases, demand for other good increases; if price of substitute decreases, demand for other good decreases
ncome – income increases, demand increases; income decreases, demand decreases
references – preferences increase, demand increases; preferences decrease, demand decreases
xpectations – expect higher prices in future, current demand increases expect lower prices in future, current demand decreases
umber of buyers – # of buyers increase, demand increases; # of buyers decrease, demand decreases

23. Number of buyers – # of buyers increase, demand increases; # of buyers decrease, demand decreases
The demand for a particular good may increase or decrease due to more or less people in the market for the good. For example, before the advent of ecommerce (using the world wide web to buy and sell), most businesses sold products to people who lived in their area of the country or who ordered products from their mail order catalogs. As people began to use online shopping in greater numbers, many businesses with little or no web presence probably experienced a decline in consumers of their products due to increased competition from online businesses while businesses who quickly and effectively adapted to the ecommerce model probably saw an increase in consumers of their products.

25. Increase Right, Decrease Left
IRDL the Turtle!!!!
Increase Right, Decrease Left

26. Pecan Article

27. Pecan statements Lunar New Year, Chinese love Pecans on New year
Corn syrup, used with pecans to make pecan pie, has risen in price
Price of walnuts increases
Household income increases in China
Price of pecans drops
US trade agreements allow for more pecans to be sold in more countries
Pecan prices expected to be higher next year
Famous celebrities seen eating pecans at award ceremonies

28. Determinants of Supply (from lesson)
Change in the cost of productive resources
Change in technology
Change in profit opportunities of producing other products
Change in producers’ price expectations
Change in number of sellers in the market
Change in the government tax or subsidy

29. Determinants of Supply (from Cannon)G R E N T
overnment decisions
TAXES – taxes increase, supply decreases; taxes decrease, supply increases
SUBSIDIES –subsidies increase, supply increases; subsidies decrease, supply decreases
REGULATIONS – regulations increase, supply decreases; regulations decrease, supply increases
esource prices or availability -
resource prices have an inverse relationship with supply
resource availability has a direct relationship with supply
xpectations – expect to sell more, supply increases; expect to sell less, supply decreases; expect to sell at future higher prices, immediate supply decreases.
umber of producers – direct relationship to supply
echnology or training – direct relationship to supply

30. Shifts in Supply
Supply price
Quantity of pecans per day

31. Pecan Statements (supply)
US farmers cutting down pecan groves to make way for more profitable crops
Price of pecan-shelling machines rises greatly
Price of pecans falls as consumers prefer hazelnuts*
Scientists successfully produce genetically modified pecan trees that can produce twice as much as a normal tree
Engineers develop machines that “shake” the nuts out of trees
US gov’t provides subsidies to pecan growers
A flood destroys pecan groves in Georgia
Pecan producers expect lower pecan prices due to declining demand for nuts

32. Activity 6.3 & Cannon’s Activity