Supply and Supply and DemandDemand

The Basic Graph The Basic Graph (aka “The Starting (aka “The Starting Point”)Point”)

Equilibrium

Definition for SupplyDefinition for Supply

The The total amounttotal amount of a good or of a good or service producers are willing service producers are willing and able to make at all prices and able to make at all prices at a specific point in time.at a specific point in time.

Law of SupplyLaw of Supply

States that as price States that as price increases increases (or decreases)(or decreases) the the quantity quantity suppliedsupplied also increases (or also increases (or decreases).decreases).

or

Things (determinants that Things (determinants that could shift (change) the could shift (change) the SUPPLY of a productSUPPLY of a product

Price and availability of land, Price and availability of land, labor and capital labor and capital (OJ v. cold winter)(OJ v. cold winter)

New technology New technology (cotton gin)(cotton gin)

Number of other sellers Number of other sellers (grocery (grocery stores in M’town)stores in M’town)

Things (determinants that Things (determinants that could shift (change) the could shift (change) the SUPPLY of a product, cont.SUPPLY of a product, cont.

Price of other goods I could Price of other goods I could produce produce (fresh fruits/vegetables in (fresh fruits/vegetables in summer v. winter)summer v. winter)

Taxes Taxes (if they increase overall cost (if they increase overall cost goes up too)goes up too)

Graphing a Shift in SupplyGraphing a Shift in Supply(start w/ the basic graph)(start w/ the basic graph)

S2

S2

Graphing a Shift in Graphing a Shift in Supply Supply

The NEW supply line (S2) is The NEW supply line (S2) is called the called the Supply CurveSupply Curve..

That’s CrazyThat’s Crazy – it’s – it’s aa straight line! (don’t straight line! (don’t let that throw you off) let that throw you off)

Graphing a Shift in Supply Graphing a Shift in Supply (show the new (show the new price/quantity)price/quantity)

S2

P2

Q2

Definitions for DemandDefinitions for Demand

The The total amounttotal amount consumers consumers are willing and able to buy at are willing and able to buy at all prices at a specific point in all prices at a specific point in time.time.

Law of DemandLaw of Demand

States that as price States that as price increases (or decreases) the increases (or decreases) the quantity demandedquantity demanded decreases (or increases).decreases (or increases).

or

Things (determinants) that Things (determinants) that could shift (change) the could shift (change) the DEMAND for a productDEMAND for a product

Tastes and fads Tastes and fads (McNabb shirts)(McNabb shirts)

Income Income (Prada, Coach, BMW)(Prada, Coach, BMW)

Number of buyers Number of buyers (Burger King)(Burger King)

Things (determinants) that Things (determinants) that could shift (change) the could shift (change) the DEMAND for a product, DEMAND for a product, cont.cont.

Future price expectations Future price expectations (SUVs when gas increases)(SUVs when gas increases)

Price and availability ofPrice and availability ofSubstitutes Substitutes (Uggs v. no name)(Uggs v. no name)

Compliments Compliments (jam/jelly w/ PB)(jam/jelly w/ PB)

Graphing a Shift in DemandGraphing a Shift in Demand(start w/ the basic graph)(start w/ the basic graph)

D2

D2

Graphing a Shift in Graphing a Shift in Demand Demand

The NEW Demand line is called the The NEW Demand line is called the Demand CurveDemand Curve..

That’s Right Folks That’s Right Folks – – it’s also a straight line! it’s also a straight line!

Graphing a Shift in Demand Graphing a Shift in Demand (show the new (show the new price/quantity)price/quantity)

P2

Q2

D2

I R D LI R D LAlways remember it so you know Always remember it so you know whether to shift right or leftwhether to shift right or left(for either supply or demand). . .(for either supply or demand). . .

I R D LI R D L stands for stands for . . . . . .

IIncreasencreaseRRightightDDecreaseecreaseLLefteft

Let’s Try Let’s Try It!It!

Imagine you are reading a Imagine you are reading a newspaper and come across the newspaper and come across the

following headlines . . .following headlines . . .

Two Major Computer Two Major Computer Manufacturers Build Five Manufacturers Build Five New FactoriesNew Factories

Does it deal with Supply or Demand?Does it deal with Supply or Demand? SupplySupply Does supply increase or decrease?Does supply increase or decrease? IncreaseIncrease Does the supply curve shift to the right or Does the supply curve shift to the right or

left?left? RightRight

Doctors announce Doctors announce benefits of eating ice benefits of eating ice

creamcream

Try AnotherTry Another

Car Manufacturer Car Manufacturer Announces Plans for Announces Plans for SUV Price Increase in SUV Price Increase in

Two MonthsTwo Months

Here’s a Tricky OneHere’s a Tricky One

Toyota unveils new car that gets 97 mpg!

Protected Owls Discovered in Lumber

Forest! Companies told to

discontinue logging.

For Group ChartingFor Group Charting

Two markersTwo markers One big sheet of paperOne big sheet of paper One headlineOne headline