1. Supply and Demand The determinants of supply and demand

2. Plot the following Price Quantity $9 2 8 3 5 7 6 9 What kind of curve is it?

3. Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9 P Qd 9 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 9 5 Q

4. Price Quantity Demanded Qd P $9 2 8 3 5 7 6 9 P Qd 9 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 9 5 Q

5. 9 8 7 6 D 2 3 9 5 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. Qd 9 just a point on the curve. 8 7 6 D is the entire curve. 2 3 9 5 Q 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 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.

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

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

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

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

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

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

20. P S 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.

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. 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

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

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

27. 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

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

29. U.S. automakers use robots to produce their 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

30. 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

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

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

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

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

35. P S P D Q 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 S P D Q 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 S P D Q 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 S Surplus: Qs > Qd P P D Q Q Qd Qs

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