Supply for Students
description
Transcript of Supply for Students
CChangehange in in QDQD [ [inverse]inverse] oror CChangehange in in QSQS
[direct][direct]
[[caused by acaused by a ““change in pricechange in price””]]or aor a
Will We Have Will We Have
SwooshSwoosh “ “Change Change in in DD”” caused bycaused by ““TIMERTIMER””
“ “CChange in hange in SS”” caused bycaused by ““RATNESTRATNEST””
BoingsBoings
Increase in “QD”Increase in “QD”[caused by a “decrease in price”][caused by a “decrease in price”]
Decrease in “QD”Decrease in “QD”[caused by an “increase in price”][caused by an “increase in price”]
1. Price change1. Price change2. Movement2. Movement3. P3. Pointoint to to ppoinointt[“[“Snap shotSnap shot of of 1 pt1 pt in in timetime]]
Change in “D” [“TIMER”]Change in “D” [“TIMER”]1. Non-price1. Non-price2. Whole curve2. Whole curve3. Shift3. Shift[“Time passes”][“Time passes”]
What could causeWhat could cause an an “increase“increase in in DemandDemand?”?” 5. ExpectationsExpectations of a shortageshortage1. Increase in tastetaste 6. ExpectationsExpectations of a price increaseprice increase2 .Increase in incomeincome [normal goodnormal good] 7. ExpectationsExpectations of positive future incomepositive future income3. Decrease in incomeincome [inferior goodinferior good] 8. IncrIncr in price of a substitutesubstitute for product “X”
4. Increase in market sizemarket size [## of of consumersconsumers] 9. DecrDecr in price of a complementcomplement of product “X”
PP11
PP22
QDQD11
PP11
PP22
QDQD11
DD DD
DD11 DD22 DD11
DD22PP
PP
““Increase in D”Increase in D” ““Decrease in D”Decrease in D”
QDQD22 QDQD22
Decrease in “QS”Decrease in “QS”[caused by a “decrease in price”][caused by a “decrease in price”]
Increase in “QS”Increase in “QS”[caused by an “increase in price”][caused by an “increase in price”]
1. Price change1. Price change2. Movement2. Movement3. P3. Pointoint to to ppoinointt[“[“Snap shotSnap shot of of 1 pt1 pt in in timetime]]
Change in “S” [RATNEST]Change in “S” [RATNEST]
1. Non-price1. Non-price2. Whole curve2. Whole curve3. Shift3. Shift[“Time passes”][“Time passes”]
What could cause an “increase in supply?”What could cause an “increase in supply?” 4. IncreaseIncrease in numbernumber of of producersproducers1. DecreaseDecrease in resource costresource cost [wages/raw materials] 5. IncreaseIncrease in technologytechnology2. DecreaseDecrease in the price of an alternative outputalternative output for “X”“X” 6. IncreaseIncrease in subsidiessubsidies3. Producer expectationsProducer expectations of a price decreaseprice decrease 7. DecreaseDecrease in taxestaxes
PP11
PP22
QSQS11
PP11
PP22
QSQS11
SS SS
SS11 SS22SS11SS22
PPPP
““Increase in S”Increase in S” ““Decrease in S”Decrease in S”
QSQS22QSQS22
65,00065,000 QSQS22
25,00025,000 QSQS11
SS$3$3
$2$2
Soybeans [bushels]Soybeans [bushels]
““Particular Price”Particular Price”
Firm A’s SupplyFirm A’s Supply Firm B’s SupplyFirm B’s Supply Firm C’s SupplyFirm C’s Supply
Soybeans [bushels]Soybeans [bushels] Soybeans [bushels]Soybeans [bushels] Soybeans [bushels]Soybeans [bushels]
$3$3
$2$2
$3$3
$2$2
$3$3
$2$2
10,00010,000 30,00030,000 QS1QS1 QS2QS2
5,000 5,000 10,00010,000 QS1QS1 QS2QS2
10,00010,000 25,00025,000 QS1 QS1 QS2QS2
SS SS
Direct – both variables move in same direction.
SS
Deriving Market Supply from Individual Firm Supply CurvesDeriving Market Supply from Individual Firm Supply Curves
.
QSQS22
DirectDirect
Reasons For Upsloping “S” CurveReasons For Upsloping “S” Curve1. There is increasing opportunity cost if you don’t produce.2. Current producers produce more [overtime/more shifts]3. New producers are attracted to the market.
““S”S” refers to the refers to the “whole supply curve”“whole supply curve” and refers to what and refers to what producers will supply at producers will supply at “different prices”“different prices”..““QS”QS” refers to a refers to a “point on the curve”“point on the curve” and refers to what and refers to what
producers will supply at a producers will supply at a “particular price”“particular price”..
Change in “QS”Change in “QS”1. Price change2. Movement (up/down “S” curve)
3. Point to point (along “S” curve)
SS
QSQS11
PP22
PP11
Price increasesincreases; QS increasesincreasesPrice decreasesdecreases; QS decreasesdecreases
Producers want theProducers want thehighest price possible.highest price possible.
10,00010,000 65,00065,000
$5$5
Existing Existing supplierssuppliers of of
DVD Rentals DVD Rentals are are willingwilling to to supply more supply more as theas the price price increases & others increases & others [Albertson’s] [Albertson’s] are are attracted to the attracted to the market.market.
$2$2
SSPP
$100$90$80$70$60$50$50$40$30$20$10
0
20 4040 6060 7575 100 120120 140 160160 180180 200200 220
Quantity (units of any good or service)
7070 175175
120 =120120 =120
QD=QSQD=QSEE
QDQD QSQS
QDQD QSQS
QSQS QDQD
QSQS QDQD
DD SSPrice FloorPrice FloorSurplusSurplus
Price CeilingPrice CeilingShortageShortage
DollarDollarPricePrice
If If QS>QDQS>QD; ; Price DecreasesPrice Decreases
If If QS<QDQS<QD; ; PPricerice Increases IncreasesIf If QD=QSQD=QS; ; PricePrice SStays tays SSameame
$5$5
$4$4
$3$3
$2$2
$1$1
00
ShortagesShortages & & SurplusesSurpluses
1 1 2 2 44 6 7 8 6 7 8 99 1010 1111 1212 14 14 161644
Quantity Supplied and Demanded (Thousands)
DD S
$90$90Why do the Ags have a scoreboard on the outside of the stadium?
Aggieland Football Season TicketsAggieland Football Season Tickets
The Aggies have a scoreboard outside so that the 5 ReveillesThe Aggies have a scoreboard outside so that the 5 Reveilleswho are buried outside the stadium can see the scoreboard.who are buried outside the stadium can see the scoreboard.
The 5 mascots5 mascots are ranked as5-Star generals5-Star generals and are buriedburiedfacing the scoreboardfacing the scoreboard.
The PlaquePlaque says this:“Reveille 1st, and the other Reveillesthat follow her, will always have aspecial place in an Aggie’s heart andsymbolize the undying undying spiritspirit of
Texas A&MTexas A&M.”
The Aggie War HymnThe Aggie War HymnHullabaloo, Caneck, CaneckHullabaloo, Caneck, CaneckHullabaloo, Caneck, CaneckHullabaloo, Caneck, CaneckGood bye to Good bye to texas universitytexas university
So long to the orange and the whiteSo long to the orange and the whiteGood luck to dear old Texas AggiesGood luck to dear old Texas AggiesTThey are the boys who show the real old fighthey are the boys who show the real old fight
‘‘the eyes of Texas are upon you’the eyes of Texas are upon you’That is the song they sing so wellThat is the song they sing so well
Sounds Like hellSounds Like hellSo good bye to texas universitySo good bye to texas university
We’re gonna beat you all toWe’re gonna beat you all toChigaroogaremChigaroogaremChigaroogaremChigaroogarem
Rough, Tough, Real stuff, Texas A&MRough, Tough, Real stuff, Texas A&M
““Bread & Butter”Bread & Butter” of Economics of Economics[“perfectly competitive markets”][“perfectly competitive markets”]
The Law of SupplyLaw of Supply says QSQS varies directlydirectly with priceprice.PP22
QSQS11
SS
DirectDirect – – priceprice and and QSQS movemove in the in the same directionsame direction. . (increase together or decrease together)(increase together or decrease together)
PP11
SupplySupply (& Demand)(& Demand)
The Law Of DemandLaw Of Demand says QDQD varies inverselyinversely with priceprice.
QSQS22
The law of supply and demand is learned inlearned ininfancyinfancy. . Infants demand clean diapersInfants demand clean diapers and are willing to supply peace and quiet in willing to supply peace and quiet in exchangeexchange. Mothers demand peace and quiet Mothers demand peace and quiet and are willing to supply clean diapers in and are willing to supply clean diapers in exchangeexchange. The terms of trade are arranged.““One scream equals one diaper. One scream equals one diaper. The price of one diaper is one scream.”The price of one diaper is one scream.”
SupplySupply – producers “willingness to sell.”“willingness to sell.” Or, the ““amountamount of of products offeredproducts offered at at each price duringeach price during a specific time period.”a specific time period.”
Supply Supply & & DemandDemand [[Bread & ButterBread & Butter of Econof Econ]][assuming[assuming “perfectly competitive markets” “perfectly competitive markets”]]
“I want a clean diaper.”
[[No individual can control price.No individual can control price.]]
Supply Supply (and Demand)(and Demand) “Bread & Butter”“Bread & Butter” of Economics[“perfectly competitive markets[“perfectly competitive markets”]”]
Law of SupplyLaw of Supply – QSQS varies directlydirectly with priceprice.Suppliers offer Suppliers offer moremore for sale at higher priceshigher pricesthan at lower prices. The consumersconsumers, being on the paying end, tend to buy a small amount of the product, but will buy more ifbuy more if the price is loweredprice is lowered. The suppliersupplier, on thereceiving end, considers priceprice as an as an incentiveincentiveto sell a product. The higher the price, the more incentive he has.
Bread Butter
- As price increases- As price increases
… …Q S also increasesQ S also increases
DirectDirect relationship between PP & QSQS
PP22
PP11
QSQS11
SS
PP11
PP22
SS
“Take it. We are losing money.”QS1QS1
-As priceAs price decreasesdecreases… … QS QS alsoalso decreasesdecreases
“Let’s make more.”
QSQS22
QS2QS2
4545. ElasticElastic SupplySupply – a small increase/decrease in price causes significant change in QS. Elastic supply is very responsiveto price changes.
Elastic (Flexible) SupplyElastic (Flexible) Supply Inelastic (Inflexible) SupplyInelastic (Inflexible) Supply 1. Can be made quickly 1. Cannot be made quickly2. Little expense (few 2. Great Expense (large capital capital resources required) resources required)3. (47)(47) UnskilledUnskilled workers 3. (48)(48) SkilledSkilled workers4. Long time 4. Short time5. Don’t need scarce 5. Scarcity of natural resources natural resourcesExamples: (50) (50) T-shirtsT-shirts, hats, Examples: Gold, diamonds, shot glasses, and posters and (49) (49) computerscomputers
4646. InelasticInelastic SupplySupply - regardless of price, producers are unwilling/unable to increase/decrease QS. (QS is inflexibleand unresponsive to price changes)
Elastic Elastic supplysupply is veryvery responsiveresponsive to price &
inelasticinelastic supply is unresponsiveunresponsive to price.
5151. Elastic supplyElastic supply results in a more horizontalhorizontal line & 5252. inelastic supply results in a more verticalvertical line.
0 0 1000 2000 3000 400 50001000 2000 3000 400 5000
QS1 QS2
Change in “Supply” [Curve]Change in “Supply” [Curve]1. “Non-price change” [RATNESTRATNEST]2. Whole supply curve “shifts”[There was a QS change but it was not caused by a change in price].
BroccoliBroccoli
“Suppliers produce smallesmaller/ largerlarger quantities at each price.”
““Substitutes in production”Substitutes in production”
I only I only have have 200 200
acresacres
SS11
SCornCorn SS11
PSS22 Alternative Output Price ChangeAlternative Output Price Change
[[IINNVVEERRSSEE]]
QSQS1 1
P2
P1
PSS11 SS22
[new football league- bigger “S” of games]
Don’t confuse theseDon’t confuse thesetwo with Chg in QStwo with Chg in QS..
QSQS22QSQS33
SS33 SS22
PP
““Supply Shifters” [RATNEST]Supply Shifters” [RATNEST]1. RResource Cost [wages /raw materials ] [IINNVVEERRSSEE]
2. AAlternative Output Prices [IINNVVEERRSSEE]
3. TTechnology [DIRECTDIRECT]
4. NNumber of Suppliers [DIRECTDIRECT]
5. EExpectations [about future price] [IINNVVEERRSSEE]
6. SSubsidies [DIRECTDIRECT]
7. TTaxes [IINNVVEERRSSEE]
1.1.ResourceResource CostCost [wages & raw materials[wages & raw materials]] [Inverse][Inverse]
WagesWages Raw MaterialsRaw Materials
SSIf resource cost
decreases supply
Increases[making more $]
If resource cost
increases supply
Decreases[making less $]
SSSS
PP
RResource CCost [wages & raw materials] [inverseinverse]
58. Increase in wages (increases/decreases) supply.
Ex: A decrease in the price of computer chips
(increases/decreases) the supply of computers.
S1
P
S2 S3
P1
P1
QS1QS1
BroccoliBroccoli““Substitutes in production”Substitutes in production”I only have I only have
200 acres200 acres
SCornCorn SS11
PP
SS22
QS1QS1
SS11
PPSS22
S CornCornProducers want to produce more of the good where price is increasing,Producers want to produce more of the good where price is increasing,
or at least, where the price is not going down.or at least, where the price is not going down.
BroccoliBroccoli
P2
QS2QS2
P2
QS2QS2
AAlternative Output price changes [inverseinverse]
57. If the price of corn decreases, the supply of broccoli (increases/decreases).
S3 S1 S2
P
Supply of broccoliSupply of broccoli
PP
SS11 SS22
This lowers production costs & increases “S”.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 so “udderly”“udderly” delightful that they produce 30% more milk30% more milk. This technological advance will cause a shift to the rightshift to the right. 54
““Can’t wait till Can’t wait till milking time.”milking time.”
The cow floats on its own pocket ofwater, as the water bed fits each fits each bodybody. They are “cool in summer “cool in summer and warm in the winter”and warm in the winter”.. They are They are filled with 18 gallons of water and covered with thick rubber matsthick rubber mats – undulated when the 1,400 pound cows1,400 pound cows shifted their weight.
By conforming to the shape of the cows, the beds give the cows a more more comfortablecomfortable rest. They reduce wear and tearreduce wear and tear on the cows’ joints & prevent prevent swelling andswelling and burningburning of hockshocks (ankles). The cows pressure points, the knees and hocks (ankles)(ankles) float on the surface preventing hair loss, skinpreventing hair loss, skin abrasions, abrasions, andand swollen hocksswollen hocks. Because the cow’s utter floats on top of theutter floats on top of the waterbed and is not crushed against a solid bed surface,waterbed and is not crushed against a solid bed surface, thethe cow’scow’s udder received better blood flowudder received better blood flow..The cows appear to be lazyappear to be lazy because they lie down for 6-8 hours a day to digest food. However, there is a lot of work going onlot of work going on inside their bodies. The cow’s udder extracts nutrients from blood to produce milk. 500 500 gallons of blood have to circulate thru a cow’s udder to produce gallons of blood have to circulate thru a cow’s udder to produce nutrients for one gallon of milk.”nutrients for one gallon of milk.” The cows wait for a shot at the water beds. The first onesfirst ones who come back from the milking parlor fill those fill those water bed stalls firstwater bed stalls first. . The otherThe other late-arriving cows late-arriving cows say,say,
Technological Breakthrough – Cow WaterbedsTechnological Breakthrough – Cow Waterbeds““500500 gallons of blood gallons of blood have to circulate thru a cow’s have to circulate thru a cow’s udder to produce nutrients for udder to produce nutrients for one gallonone gallon of milk of milk.”.”
How many?How many?
““Mooooooovvvvvveeeeee over, give me that water bed.”Mooooooovvvvvveeeeee over, give me that water bed.”
Waterbedsforcows.comWaterbedsforcows.com
56. 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.
60. A new professional football league will (increase/decrease) the supply of football games.
SS33 SS1 1 SS22
PP
S1PP
Q
$2.00$2.00
Supply decreased when Supply decreased when the number of suppliers the number of suppliers was reduced.was reduced.
If the number of firms If the number of firms in the market in the market increases, Supply will increases, Supply will also increase.also increase.
SS22
SS33
QSQS11QSQS22 QSQS33
59.59. If oil producers expectexpect future oilfuture oil prices prices toto declinedecline, they will (increase/decrease) current production.
SS11
Oil PricesOil Prices
expectedexpected to decreaseto decrease
[“INVERSE”][“INVERSE”]
PP
SS22
If oil producers expect future oil prices to expect future oil prices to increaseincrease, they will (increase/decrease) current production.
SS22
Oil PricesOil Prices
expected expected to increaseto increase
SS33[Direct][Direct]
PP
Free money from the government (subsidiessubsidies) induces suppliers to supply more.
SS11 SS22
If subsidies are taken away, then suppliers are losingmoney and will decrease supply.
SS33[Inverse][Inverse]
PP
If business have their taxes decreasedtaxes decreased,it moves the supply curve to the right.
SS11 SS22
55. If business have their taxes increasedtaxes increased, it moves the supply curve to the (left/right).
I’m losingI’m losingprofits.”profits.”
Individual Supply Can Individual Supply Can IncreaseIncrease or or DecreaseDecrease
6
5
4
3
2
1
0
Quantity Supplied (bushels per week)
Pri
ce (
per
bu
shel
)
P Qs
$5
4
3
2
1
60
50
35
20
5
IndividualSupply
P
Q
SS11
SS22
SS33
2 4 6 8 10 12 14
Change in Supply [“RATNEST”]
1. Decrease in resource cost2. Alt. output price decrease 3. Technological change4. Increase in # of suppliers5. Producer exp. of price decrease6. Increase in subsidies7. Decrease in taxes
1. Increase in resource cost2. Alt. output price increase 3. Technological decrease4. Decrease in # of suppliers5. Producer exp. of price increase6. Decrease in subsidies7. Increase in taxes
““S” S” is ais a whole bunch whole bunch ofof
QS’s strung together.QS’s strung together.
DD11 DD22 SS
PP11
PP22
QQ11 QQ22
Shortage
Increase in DemandIncrease in Demand[For clownfish after “Finding Nemo”][For clownfish after “Finding Nemo”]
DD22
SS
PP11
PP22
QQ22 QQ11
DD11
Surplus
D S1
P1
QQ11
PP22
QQ22
SS22
ShortageShortage
DD SS11
PP11
QQ22
PP22
QQ22
SS22SurplusSurplus
$2.70$2.70 1.351.35
DD22
With Much Higher Gas Prices, What With Much Higher Gas Prices, What Happens In The SUV/RV MarketHappens In The SUV/RV Market
SS11
PP11
PP22
QQ22 QQ11
DD11 8 8 MPGMPG
SurplusSurplus QSQSQDQD
Four PossibilitiesFour Possibilities
DD11 DD11SS
AA BB
CCDD
Increase inIncrease insupplysupply of of gasgas
Slide RuleSlide RuleAfter introductionAfter introduction
of calculatorof calculator
SSDD11
DD22
[TIMER][TIMER]
[RATNEST][RATNEST]
““D” for flagD” for flagafter 9/11after 9/11
““Increase in Demand”Increase in Demand”“Decrease in Demand”
““Increase in Supply”Increase in Supply”““Decrease in Suppy”Decrease in Suppy”
DDecreaseecrease in in““S” of gasS” of gas
DD PP QQ DD PP QQ
SS QQ PPPP SS QQDD
SS11
DD
SS11SS22
$1.85$1.85
$1.00$1.00
QQ11 QQ22 QQ2 2 QQ11
$1.85$1.85SS11
$1.00$1.00
PP22
PP11PP11
PP22
QQ11 QQ22 QQ2 2 QQ11
AfterAfter “Looking “LookingFor Nemo”For Nemo”
Decrease in “QS”Decrease in “QS”[caused by a “decrease in price”][caused by a “decrease in price”]
Increase in “QS”Increase in “QS”[caused by an “increase in price”][caused by an “increase in price”]
1. Price change1. Price change2. Movement2. Movement3. P3. Pointoint to to ppoinointt[“[“Snap shotSnap shot of of 1 pt1 pt in in timetime]]
Change in “S” [RATNEST]Change in “S” [RATNEST]
1. Non-price1. Non-price2. Whole curve2. Whole curve3. Shift3. Shift[“Time passes”][“Time passes”]
What could cause an “increase in supply?”What could cause an “increase in supply?” 4. IncreaseIncrease in numbernumber of of producersproducers1. DecreaseDecrease in resource costresource cost [wages/raw materials] 5. IncreaseIncrease in technologytechnology2. DecreaseDecrease in the price of an alternative outputalternative output for “X”“X” 6. IncreaseIncrease in subsidiessubsidies3. Producer expectationsProducer expectations of a price decreaseprice decrease 7. DecreaseDecrease in taxestaxes
PP11
PP22
QSQS11
PP11
PP22
QSQS11
SS SS
SS11 SS22SS11SS22
PPPP
““Increase in S”Increase in S” ““Decrease in S”Decrease in S”
QSQS22QSQS22
““IncreaseIncrease in in DD”” ““Decrease in Decrease in DD”” ““Increase in Increase in SS”” ““Decrease in Decrease in SS””
___1. Decrease in incomeincome on market for used carsused cars.___2. Decrease in incomeincome on market for new carsnew cars.___3. Consumer expectationsConsumer expectations about a price decreaseprice decrease.___4. Producer expectationsProducer expectations about a price decreaseprice decrease.___5. Increase in # of producers# of producers on the market for computerscomputers.___6. Increase in # of consumers# of consumers on the market for used carsused cars.___7. Increase in # of consumers# of consumers on the market for new carsnew cars.___8. Decrease in the price of iPodsiPods upon the market for iTiTune songsune songs.___9. Decrease in business taxesbusiness taxes on the market for computerscomputers.___10. Consumer expectationsConsumer expectations of a shortage of applesapples.___11. Decrease in resource costresource cost on market for computerscomputers.___12. Increase in price of wheatwheat upon market for corncorn.___13. Consumer expectationsConsumer expectations of a shortage of cell phones.___14. Producers expectationsProducers expectations about a price increase.___15. Increase in incomeincome on the market for iPod videosiPod videos.
BBBB
CCCCAA
AACCAA
DDCC
AA
AA
AA
AA
DD
D1 D2
(A)(A) (B)(B) (C)(C) (D)(D)
DD11
DD22
SS SS SS11 SS11SS22
SS22DD DD
TIMERTIMER RATNESTRATNEST
PP22 PP11 PP11PP22
PP11 P2P2 PP22PP11
QDQD1 1 QDQD22 QDQD22 QD1QD1 QDQD11 QD2 QD2 QDQD22 QD1 QD1
NS 41-53NS 41-5341. Supply – quantities producers offer at each (technique/price).42. The relationship between priceprice and QSQS is (direct/inverse) and the relationship between priceprice and QDQD is (direct/inverse) or opposite.43. The “law“law of of supply”supply” indicates that producers will offer (less/more) at higher prices.
44. In moving along a stable supply/demand curvemoving along a stable supply/demand curve, (income/price) is not held constant.
45. (Inelasic/Elastic) supply-when QS is very responsive to pricevery responsive to price.46. (Inelastic/Elastic) supply-when a change in price has little impact on QSlittle impact on QS.47. The 3-item test for elastic supplyelastic supply is: the item can be made quickly, it tends to be cheap, & it can be produced by (skilled/unskilled) workers.48. The 3-item test for inelastic supplyinelastic supply is: the item cannot be made quickly, it tends to be expensive, & (skilled/unskilled) workers.49. An example of inelastic supplyinelastic supply is (posters/computers/T-shirts).50. An example of elastic supplyelastic supply is (HDTV/computers/T-shirts).51. The supply curve for elastic supplyelastic supply is more (flat/vertical).52. The supply curve for inelastic supplyinelastic supply is more (flat/vertical).53. A decrease in the price of cattle feedcattle feed will cause the (D/S) curve for beefbeef to shift.
Bushels BushelsDemanded Corn Price Supplied
2626 $5 $5 46 46 3232 $4 $4 41 41 3737 $3 37 $3 37 4343 $2 $2 32 32 4848 $1 $1 29 29
61. Equilibrium priceEquilibrium price will be ($1/$2/$3/$4/$5). 62. If the priceprice in this market were $2$2, farmers (would/would not) be able to sell all their corn.63. If the price were initially $5price were initially $5, we would expect the price of corn supplied to (increase/decrease) as a result of the price change.
$$33$$22
$$55DD SS
2626 46463232 43433737
64. A price of $36$36 will result in a (shortage/surplus) of (50/100).
65. Price Price && quantity quantity will gravitate toward ($12 & 150/$24 & 100).
66. The highest price that buyers will be willing & able to pay highest price that buyers will be willing & able to pay for for 50 units50 units is ($12/$24/$36).
67. A price of $12$12 in this market will result in a (surplus/shortage) of (50/100).
00 5050 100 100 150150
$36$36
$24$24
$12$12
SSDD
EE
74. A decrease in incomeincome, if “X” is an inferior goodinferior good would (increase/decrease) (demand/supply), (increase/decrease) price, and (increase/decrease) quantity.75. A decrease in the number number of of consumersconsumers for product “X” will (increase/decrease) (demand/supply), (increase/decrease) price, and (increase/decrease) quantity.76. Producer expectationsProducer expectations that the price of “X”“X” will decrease sharply in the future will (incr/decr) (demand/supply), (incr/decr) price, & (incr/decr) quantity.77. A decrease in the price of a product which is a substitutesubstitute to “X”“X” will (incr/decr) (supply/demand), (incr/decr) price, (incr/decr) quantity.
68. Increase in the price of irrigation equipmentirrigation equipment [resource costresource cost] upon the market for wheatwheat is illustrated by diagram (A/B/C/D). 69. Increase in incomesincomes upon the market for spamspam is illustrated by diagram (A/B/C/D).70. SubsidySubsidy for cancer research being taken away is illustrated by diagram (A/B/C/D).71. Decrease in the price of MM&&MMss upon the market for SSnickersnickers is illustrated by (A/B/C/D).72. Decrease in worker wagesworker wages on the market for textiles is illustrated by (A/B/C/D).73. Increase in the price of camerascameras upon the market for filmfilm is illustrated by (A/B/C/D).
NS 68-77NS 68-77
SS22
P2P2EE22
DD22 SS22
DD22
EE22
SS22
QQ22DD22
SS22
QQ22
78. If demand increasesdemand increases and supply decreasessupply decreases, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).79. If demand decreasesdemand decreases and supply increasessupply increases, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). 80. If the supply and demand curves both increasesupply and demand curves both increase, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same). 81. If demand and supply curves both decreasedemand and supply curves both decrease, equilibrium price will (incr/decr/stay the same) & equilibrium quantity will (incr/decr/stay the same).
EE22
*Staying the same means indeterminateindeterminate, that is, the quantity could increaseincrease,
decreasedecrease, or stay the samestay the same, depending on the magnitude of the shiftsmagnitude of the shifts.
SS1D1DD2
EE2
P2P2
Price FloorPrice Floor – minimumminimum priceprice [creates surplusessurpluses]
.
$2.50$2.50
SP
Q0 1414 19 2424
D
SurplusSurplus
Such as:Minimum WageMinimum WageAgriculturalAgriculturalPrice SupportsPrice Supports
The price has to be IN IN the house. It can’tbe below the floor.
Some call agricultural pricesupports ““udderudder insanityinsanity.”.”
Price Floor-minimum pricePrice Floor-minimum price
QS exceeds QDQS exceeds QD
Millions of gallons per month
1.901.90P
rice
per
gal
lon
Pri
ce p
er g
allo
nEquilibrium price for milk
Price CeilingPrice Ceiling - maximum maximum priceprice [creates shortagesshortages]
7
SP D
ShortageShortage
Such as:Rent controlsRent controls in NYC in NYCWartime price controlsWartime price controlsRock concert pricesRock concert pricesSuper Bowl ticketsSuper Bowl tickets
The price has to be inin the house. It can’t be above the ceiling.
Super Bowl TSuper Bowl Ticketicket P Pricesrices E-BayE-Bay
1967 - $12.001967 - $12.00 2007 - $6-7002007 - $6-700 $2,700-10,000$2,700-10,000
[end zone - mid-field][end zone - mid-field]
Dolphins Stadium
NFL could raise the price & make another $150 M but the average man couldn’t attend.
2.52.5 33
Price Ceiling-maximum pricePrice Ceiling-maximum price
QD exceeds QSQD exceeds QS
Millions Millions of of Dwellings RentedDwellings Rented
$2,000$2,000
1,2001,200
3.53.5
NYCNYCRent ControlsRent Controls
Four PossibilitiesFour Possibilities
DD11 DD11SS
AA BB
CCDD
Increase inIncrease insupplysupply of of gasgas
Slide RuleSlide RuleAfter introductionAfter introduction
of calculatorof calculator
SSDD11
DD22
[TIMER][TIMER]
[RATNEST][RATNEST]
““D” for flagD” for flagafter 9/11after 9/11
““Increase in Demand”Increase in Demand”“Decrease in Demand”
““Increase in Supply”Increase in Supply”““Decrease in Suppy”Decrease in Suppy”
DDecreaseecrease in in““S” of gasS” of gas
DD PP QQ DD PP QQ
SS QQ PPPP SS QQDD
SS11
DD
SS11SS22
$1.85$1.85
$1.00$1.00
QQ11 QQ22 QQ2 2 QQ11
$1.85$1.85SS11
$1.00$1.00
PP22
PP11PP11
PP22
QQ11 QQ22 QQ2 2 QQ11
AfterAfter “Looking “LookingFor Nemo”For Nemo”
Banana Supply & DemandBanana Supply & Demand
Qo
DD11
Quantity
Pri
ce (
per
po
un
d)
SS11SS22
P
QQ11QQ22
PP11
PP22
Crop Freezing Crop Freezing Damage…Damage…
Patriotism Surge after 9/11…Patriotism Surge after 9/11…
American Flags After 9-11American Flags After 9-11
Qo
DD11
Pri
ce (
per
fla
g)
S1P
QQ11 QQ22
PP11
PP22
DD22
___7. Increase in the price of Apple’s iPodApple’s iPod VideoVideo on the market for Microsoft’s ZuneMicrosoft’s Zune. ___8. Increase in the price of teatea on the market for lemonlemon.___9. Increase in business taxestaxes on the market for SUVsSUVs.___10. Consumers expectConsumers expect a shortage of cell phonescell phones.
““TIMER”[D]TIMER”[D] or or “RATNEST”[S]“RATNEST”[S]
___1. Increase in incomeincome on the market for camcorderscamcorders. ___2. Increase in # of consumers# of consumers on market for computers.___3. Producer expectationsProducer expectations about a price increase.___4. Consumer expectationsConsumer expectations about a price increase.___5. Increase in # of producersproducers on market for digital cameras.___6. Increase in resource costresource cost on the market for bagels.
AAAADDAACCDDAA
BBDDAA
1. An increase in incomeincome if Microsoft’s Zune is aMicrosoft’s Zune is a normal goodnormal 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.
2. A decrease in the price of resourcesdecrease in the price of resources used to produce laptops 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
3. Decrease in price of butterbutter on the market for the substitutesubstitute margarinemargarine: 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
4. An improvement in technologyimprovement 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.
5. A decrease in the number of consumersdecrease 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 QuantityEffect of Changes in “D” or “S” on Price and Quantity
EE11
EE22 EE11
EE22
EE11
EE22
EE22
EE11
6. A decrease in tastetaste 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.
7. A reduction in the number of firmsnumber of firms producing laptops: 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.
8. An increase in the price of pancakes, a complementcomplement 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
9. A decrease in incomeincome 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.
10. Consumer expectationsConsumer 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 QuantityEffect of Changes in “D” or “S” on Price and Quantity
[D[D –– ““TIMER”; QD TIMER”; QD –– price change of product (inverse)]price change of product (inverse)]
___1. Which of the following will cause an "Increase in Demand""Increase in Demand" for computers? a. decrease in price of computers b. decrease in income c. increase in income d. increase in the price of compu ters
___2. Which of the following will cause an "Increase in QD""Increase in QD" for computers? a. decrease in price of computers b. decrease in income c. increase in income d. increase in price of computers
___3. Which of the following will cause a "Decrease "Decrease in Demand"in Demand" for plasma TVs? a. increase in price of plasma TVs b. decrease in price of plasma TVs c. decrease in # of consumers(marketsize)
___4. Which of the following will cause a "Decrease in QD""Decrease in QD" for plasma TVs? a. increase in price of plasma TVs b. decrease in price of plasma TVs c. decrease in # of consumers (market size)
[S[S –– ““RATNEST”;RATNEST”; QSQS –– price change of product (direct)]price change of product (direct)] ___5. Which of the following will cause an "Increase in Supply""Increase in Supply" for DVDs?
a. decrease in price of DVDs c. decrease in resource cost b. increase in price of DVDs d. expectations of price increase
___6. Which of the following will cause an "Increase in QS""Increase in QS" for DVDs? a. decrease in price of DVDs c. decrease in resource price b. increase in price of DVDs d. expectations of price increase
___7. Which of the following will cause a "Decrease in Supply""Decrease in Supply" for DVDs? a. increase in price of DVDs c. subsidies to suppliers of DVDs b. decrease in price of DVDs d. expectations of price increase
___8. Which of the following will cause a "Decrease in QS""Decrease in QS" for digital cameras? a. increase in price of cameras c. subsidies to suppliers of cameras b. decrease in price of cameras d. expectations of digital camera price increase
CC
AA
CC
AA
CC
BB
DD
BB
d. increase in price of computers
c. decrease in # of consumers
““IncreaseIncrease in in DD”” ““Decrease in Decrease in DD”” ““Increase in Increase in SS”” ““Decrease in Decrease in SS””
___1. Increase in price of computers computers on market for software.software.___2. Decrease in auto worker wagesauto worker wages on the market for autosautos.___3. Decrease in the price Pepsi Pepsi on the market for CokeCoke.___4. DDecrease in the price ofecrease in the price of computer chips computer chips on theon the computer computer marketmarket.
___5. Increase in price of fertilizerfertilizer on the market for wheatwheat.___6. Decrease in government subsidiessubsidies on market for AIDS researchAIDS research.
___7. Increase in incomesincomes on market for used clothingused clothing.___8. A new professional soccernew professional soccer league is formed upon the market for soccer gamessoccer games. ___9. Producer expectationsProducer expectations that the price of orange juice will increase 30% in 3 weeks? ___10. Consumer expectationsConsumer expectations that the price of orange juice will increase 30% in 3 weeks?___11. Decrease in price of computerscomputers upon market for monitorsmonitors?
BBCC
CCDDDD
CC
DD
AA
BB
BB
D1 D2
(A)(A) (B)(B) (C)(C) (D)(D)
DD11
DD22
SS SS SS11SS11SS22
SS22DD DD
TIMERTIMER RATNESTRATNEST
PPPP PP PP
AA
Review forReview forDemand and Demand and
SupplySupply
““You da man”You da man”
TheThe “Gangsta “Gangsta CarCar” ”
BusinesseBusinessess
Product MarketProduct Market
Resource MarketResource Market
Which flow represents?Which flow represents?A. Consumer expenditures?A. Consumer expenditures?B. Goods and services?B. Goods and services?C. Land, labor, capital, and C. Land, labor, capital, and entrepreneurial ability?entrepreneurial ability?D. Rent, wages, interest, D. Rent, wages, interest, and profits?and profits?HouseholdsHouseholds
33
44
221144
33
LaborLabor forfor ““Gangsta Cars”Gangsta Cars”
ChryslerChrysler300 “Gangsta Car300 “Gangsta Car
22
BusinessesBusinessesBusinesses
ChryslerChrysler PlantPlant
11
Circular FlowCircular Flow
The Circular-Flow The Circular-Flow DiagramDiagram
HouseholdsHouseholds
Product MarketProduct Market
Resource MarketResource Market
1
2
3
4
Which Flow RepresentsWhich Flow Represents??A. Goods/services?A. Goods/services?B. Consumer expenditures?B. Consumer expenditures?C. Land, labor, capital andC. Land, labor, capital and entrepreneurial ability?entrepreneurial ability?D. Rent, wages, interestD. Rent, wages, interest, , and profits?and profits?BBusinessesusinesses
LaborLabor
Fuzzy WuzzyFuzzy Wuzzy
443311
22
BusinessesBusinessesBusinesses
Consumption GoodsConsumption Goods
41. At what letter is there unemploymentunemployment [recessionrecession]?42. What letters represent resources being used in their most productive mannermost productive manner? [full employment, full production, and best available technology]43. What letter represents an improvement in technologyimprovement in technology, therefore a new PPCnew PPC frontier line?44. The (straight line/curve) illustrates the “law of increasing cost”“law of increasing cost”??45. The (straight line/curve) illustrates the “law of constant cost.”“law of constant cost.”46. At what letter would there be the most economic growth inmost economic growth in thethe futurefuture if a country were producing there nowproducing there now? What is the opportunity costopportunity cost when moving from “C”“C” toto “A”“A”; ; when moving from BB to to CC; and do we have to give anything updo we have to give anything up when moving frommoving from DD to to BB?
DD
A, B, A, B, oror CC
EE
AAConsumptionConsumption
CapitalCapitalnono
DD
AABB
CC
Cap
ital G
ood
sC
ap
ital G
ood
sEEPPCPPC
More or better resources or better technologyMore or better resources or better technology
QDQD22QDQD11
PricePrice QDQD
InverseInverse relationshirelationshipp
$299.00$299.00
DD Reasons For Reasons For Downsloping “D”Downsloping “D” Curve Curve1. Income EffectIncome Effect –current buyers buy more.2. Substitution EffectSubstitution Effect– new buyers now purchase.3. Diminishing MarginalDiminishing Marginal UtilityUtility - because buyers of successive units receive less marginal utility, they will buy more only when the price is lowered.
Change in QDChange in QD1. Price changePrice change2. MovementMovement [up/down the demand curve]3. Point to pointPoint to point [along the curve]
iPod Touch [8 GB]iPod Touch [8 GB]
““D”D” refers to the ““whole curvewhole curve”.”. [“all prices”“all prices”]““QD”QD” refers to a “point on the curve”“point on the curve”
based on a “particular price.”“particular price.”
- As price increases- As price increases
… …Q S also increasesQ S also increases
DirectDirect relationship between PP & QSQS
PP22
PP11
QSQS11
SS
PP11
PP22
SS
“Take it. We are losing money.”QS1QS1
-As priceAs price decreasesdecreases… … QS QS alsoalso decreasesdecreases
“Let’s make more.”
QSQS22
QS2QS2
““Demand Shifters” [TIMER]Demand Shifters” [TIMER]1. 1. TTaste [aste [directdirect]]2. 2. IIncome [normal-ncome [normal-directdirect] [inferior-] [inferior-inverseinverse]]3. 3. MMarket Size [number of consumers-arket Size [number of consumers-directdirect]]4. 4. EExpectations [of consumers about future *price-xpectations [of consumers about future *price-directdirect, , about future availability-about future availability-inverseinverse, or about future income–, or about future income–directdirect..5. 5. RRelated Good *Prices [substitutes-elated Good *Prices [substitutes-directdirect] [complements-] [complements-inverseinverse]]
Change in “D” [curve]Change in “D” [curve]1. Non price changeNon price change [[“TIMER”“TIMER”]]2. Whole “D” curve shiftsWhole “D” curve shifts[There is a change in “QD” but it isnot caused by a change in “price.”[QD-”single price”QD-”single price”; D-”all prices”D-”all prices”]
ComplementComplement[[inverseinverse]]
SubstituteSubstitute
[[DirectDirect]]ButterButter BreadBread BagelsBagels
PP
DD33 DD11 DD33
QDQD33 QDQD11 QDQD22
DD11 DD22
PPPP11
QDQD11 QDQD22
PP22
DD11
DD22
DD
PP
DD11 DD22
PP
QDQD11 QDQD22
DD11 DD22
PP
QDQD11 QDQD22
More incomeMore incomeresults inresults in
more demandmore demandfor new cars;for new cars;less demandless demandfor used cars.for used cars.
New CarsNew Cars Used CarsUsed Cars
Less incomeLess incomeresults inresults in
more demandmore demandfor used cars;for used cars;less demandless demandfor new cars.for new cars.
DD11 DD22
PP
QDQD11 QDQD22
More demand More demand for both newfor both newand used carsand used cars
New CarsNew Cars
Used CarsUsed Cars
This is what we told 1 billion 1 billion ChineseChinese, as new potential new potential consumersconsumers, when we opened
trade relationstrade relations with them in the 70s.
DD11 DD22
PP
QDQD11 QDQD22
If Steve Jobs responds to iRateiRate customers who
bought the iPhoneiPhone at $599 and says, “iSorryiSorry,we will raise the price back to $599 in 3 weeks.”
iPhoneiPhone
$399$399
Buy it now to save money.Buy it now to save money.
DD11 DD22
PP
QDQD11 QDQD22
Let’s say that we are coming out of recessioncoming out of recession & consumersfeel secure about their jobs. [Positive future incomePositive future income]
DD11
DD22
PP
QDQD11QDQD22
Let’s say that we are going into a recessiongoing into a recession and consumersdon’t feel secure about their jobs. [NegativeNegative future income future income]
ComplementComplement[[InverseInverse]]
SubstituteSubstitute[[DirectDirect]]
MilkMilk CerealCereal Pop TartsPop Tarts
DD11 DD22
PPPP11
QDQD11
P2
DD11
DD22
DD
PP
QDQD22
1.1.ResourceResource CostCost [wages & raw materials[wages & raw materials]] [Inverse][Inverse]
WagesWages Raw MaterialsRaw Materials
SSIf resource cost
decreases supply
Increases[making more $]
If resource cost
increases supply
Decreases[making less $]
SSSS
PP
P1
P1
QS1QS1
BroccoliBroccoli““Substitutes in production”Substitutes in production”I only have I only have
200 acres200 acres
SCornCorn SS11
PP
SS22
QS1QS1
SS11
PPSS22
S CornCornProducers want to produce more of the good where price is increasing,Producers want to produce more of the good where price is increasing,
or at least, where the price is not going down.or at least, where the price is not going down.
BroccoliBroccoli
P2
QS2QS2
P2
QS2QS2
SS
Because cows produce moremilk, farmersdon’t have to have as manycows.[saves $]
SS
PP
We love these cow waterbeds We love these cow waterbeds because webecause we get get better better blood flowblood flow and can and can produce 30% more milkproduce 30% more milk..
Supply curvemoves “udderly”“udderly”to the right.
Less skin abrasionsso happier cowsproduce more milk.
Mooooove Mooooove over and give me thatover and give me that waterbed. waterbed.
Waterbedsforcows.com
NFLNFL
S1PP
Q
$50$50
SupplySupply of of FB games increased when the XFL was FB games increased when the XFL was formed. formed.
SS33
QSQS QSQS
XFL XFL in 2001in 2001
Because of the Because of the XFL’s XFL’s cheerleaderscheerleadersmany called thismany called thisleague, not theleague, not the
XFL, but theXFL, but theSupply of FB games each week
XXXFLXXXFL XFL [Extreme Football League]
8 new teams8 new teams
If oil producers expectexpect future oilfuture oil prices toprices to declinedecline, they will (increase/decrease) current production.
SS11
Oil PricesOil Prices
expectedexpected to decreaseto decrease
[“INVERSE”][“INVERSE”]
PP
SS22
If oil producers expect future oil prices to expect future oil prices to increaseincrease, they will (increase/decrease) current production.
SS22
Oil PricesOil Prices
expected expected to increaseto increase
SS33[Direct][Direct]
PP
Free money from the government (subsidiessubsidies) induces suppliers to supply more.
SS11 SS22
If subsidies are taken away, then suppliers are losingmoney and will decrease supply.
SS33[Inverse][Inverse]
PP
If business have their taxes decreasedtaxes decreased,it moves the supply curve to the right.
SS11 SS22
If business have their taxes increasedtaxes increased, it moves the supply curve to the left.
I’m losingI’m losingprofits.”profits.”
Qo
$5
4
3
2
1
P QD
$54321
1020355580
Price
Quantity of Corn
CORN Plot the PointsPlot the Points
10 20 30 40 50 60 70 80
GRAPHING DEMANDGRAPHING DEMAND[“Change [“Change in in QD”]QD”]
$100$90$80$70$60$50$50$40$30$20$10
0
20 4040 6060 7575 100 120120 140 160160 180180 200200 220
Quantity (units of any good or service)
7070 175175
120 =120120 =120
QD=QSQD=QSEE
QDQD QSQS
QDQD QSQS
QSQS QDQD
QSQS QDQD
DD SSPrice FloorPrice Floor
SurplusSurplus
Price CeilingPrice CeilingShortageShortage
DollarDollarPricePrice
If If QS>QDQS>QD; ; Price DecreasesPrice Decreases
If If QS<QDQS<QD; ; PPricerice Increases IncreasesIf If QD=QSQD=QS; ; PricePrice SStays tays SSameame
Four PossibilitiesFour Possibilities
DD11 DD11SS
AA BB
CCDD
Increase inIncrease insupplysupply of of gasgas
Slide RuleSlide RuleAfter introductionAfter introduction
of calculatorof calculator
SSDD11
DD22
[TIMER][TIMER]
[RATNEST][RATNEST]
““D” for flagD” for flagafter 9/11after 9/11
““Increase in Demand”Increase in Demand”“Decrease in Demand”
““Increase in Supply”Increase in Supply”““Decrease in Suppy”Decrease in Suppy”
DDecreaseecrease in in““S” of gasS” of gas
DD PP QQ DD PP QQ
SS QQ PPPP SS QQDD
SS11
DD
SS11SS22
$1.85$1.85
$1.00$1.00
QQ11 QQ22 QQ2 2 QQ11
$1.85$1.85SS11
$1.00$1.00
PP22
PP11PP11
PP22
QQ11 QQ22 QQ2 2 QQ11
AfterAfter “Looking “LookingFor Nemo”For Nemo”
““Change in QD”Change in QD” ““Change in QS”Change in QS”
““Change in Demand”Change in Demand”
““Chg in Supply”Chg in Supply”
Non-Price ChangeNon-Price ChangeWhole Curve ShiftsWhole Curve Shifts
[What is not heldconstant in these 4?]
Price ChangePrice Change
PointPoint to to PointPoint
MovementMovement[[IINNVVEERRSSEE]] [DIRECT][DIRECT]
PP11
PP22
PP22
PP11
QDQD1 1 QDQD22
DD SS
QDQD2 2 QDQD11
QSQS11 QSQS22
QSQS2 2 QSQS11
PP11
PP22
PP22
PP11
SS
D1
DD22DD11
DD22
SS11S2
SS22 SS11
QQ11 QQ22 QQ22 QQ11
QQ11 QQ22 QQ2 2 QQ11
Price Changes forPrice Changes for SubstitutesSubstitutes && ComplementsComplementsSubs - DirectSubs - Direct
Dr Pepper
Complements -Complements - InverseInverse
CokeCokePP11
PP22
PP11
PP22
QDQD11 QDQD22
DD
DD DD11
D2D2
DD11 DD22
Alternative Outputs -Alternative Outputs - InverseInverseSS S1
SS22PP11
PP22 PP
QSQS22 QSQS11
BroccoliBroccoli CornCorn
HelmetsHelmets
MotorcyclesMotorcyclesPP
PP
““IncreaseIncrease in in DD”” ““Decrease in Decrease in DD”” ““Increase in Increase in SS”” ““Decrease in Decrease in SS””
___1. Decrease in the price of printers printers on the market for cartridgescartridges..
___2. Increase in worker wages worker wages on the market for computerscomputers.___3. Increase in the price Dr. Pepper Dr. Pepper on the market for CokeCoke.___4. InIncrease in the price ofcrease in the price of computer chips computer chips on theon the computer computer marketmarket.
___5. Decrease in price of fertilizerfertilizer on the market for wheatwheat.___6. Increase in government subsidiessubsidies on the market for AIDS researchAIDS research.
___7. Decrease in incomesincomes on the market for used clothingused clothing.___8. New professional hockeyNew professional hockey league is formed upon the market for hockey gameshockey games. ___9. Producer expectations Producer expectations that the price of orange juice will decrease 30% in 3 weeks? ___10. Consumer expectations Consumer expectations that the price of orange juice will decrease 30% in 3 weeks?___11. Decrease in price of computerscomputers upon market for monitorsmonitors?
AADD
DDCCCC
CC
CC
BB
AA
AA
D1 D2
(A)(A) (B)(B) (C)(C) (D)(D)
DD11
DD22
SS SS SS11 SS11SS22
SS22DD DD
TIMERTIMER RATNESTRATNEST
PP PP PP PP
AA
1. A decrease in incomeincome if spamspam is an inferior 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.
2. An increase in the price of resourcesincrease 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.
3. Decrease in price of butterbutter on the market for the substitute margarinemargarine: 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
4. An improvement in technologyimprovement 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.
5. An increase in the number of consumersincrease 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 QuantityEffect of Changes in “D” or “S” on Price and Quantity
6. An increase in tastetaste 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.
7. A reduction in the number of firmsnumber of firms producing laptops: 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.
8. A decrease in the price of pancakespancakes, a complementcomplement for syrupsyrup 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
9. An increase in incomeincome upon the market for used carsused 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, decrease P, & decrease Q.
10. Consumer expectationsConsumer 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 QuantityEffect of Changes in “D” or “S” on Price and Quantity
[D [D –– ““TIMER”; QDTIMER”; QD –– price change of product (inverse)]price change of product (inverse)]
___1. Which of the following will cause a ““Decrease in Demand"Decrease in Demand" for Seven jeans? a. decrease in price of Seven jeans b. decrease in income c. increase in income d. increase in the price of compu ters
___2. Which of the following will cause a ““Decrease in QD"Decrease in QD" for Seven jeans? a. decrease in price of Seven jeans b. decrease in income c. increase in income d. increase in price of Sevens
___3. Which of the following will cause an “ “Increase Increase in Demand"in Demand" for Seven jeans? a. increase in price of Seven jeans b. decrease in price of Seven jeans c. decrease in # of consumers(marketsize)
___4. Which of the following will cause an “ “Increase in QD“ Increase in QD“ for Seven jeans? a. increase in price of Seven jeans b. decrease in price of Seven jeans c. decrease in # of consumers(marketsize)
[S [S –– ““RATNEST”; QSRATNEST”; QS –– price change of product (direct)]price change of product (direct)] ___5. Which of the following will cause a ““Decrease in Supply"Decrease in Supply" for the Zune?
a. decrease in price of the Zune c. decrease in resource cost b. increase in price of the Zune d. expectations of price increase
___6. Which of the following will cause a ““Decrease in QS"Decrease in QS" for the Zune? a. decrease in price of the Zune c. decrease in resource price b. increase in price of the Zune d. expectations of price increase
___7. Which of the following will cause an ““Increase in Supply"Increase in Supply" for the Zune? a. increase in price of the Zune c. subsidies to suppliers of the Zune b. decrease in price of the Zune d. expectations of price increase
___8. Which of the following will cause an “ “Increase in QS"Increase in QS" for the Zune? a. increase in price of the Zune c. subsidies to suppliers of the Zune b. decrease in price of the Zune d. expectations of a Zune price increase
BB
DD
CC
BB
DD
AA
CC
AA
d. increase in price of Sevens
c. increase in # of consumers
7 Revised
of the Zunefor the Zune
for the Zune
for the Zune
Practice “Supply Quiz”Practice “Supply Quiz” 1. Which would cause a “decrease in supply”“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
2. Which would cause a “decrease in QS”“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
3. Which would cause an “increase in supply”“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 increase4. Which would cause an “increase in QS”“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)
the supply of the alternative outputalternative output peas.6. A 50% decrease in the price of “computer chips”“computer chips” will (increase/decrease) the (supply/QS) for “computers”.“computers”.7. Which would cause an “increase in supply”“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.