Transcript Slide 1

Selling
Price
$5
$4
$3
$2
$1
Quantity
Demanded
10
15
25
40
60
Graphing:
-Plot the points
-Connect the dots
Price
$6
$5
Downsloping
to right
$4
$3
left
Demand
$2
$1
0
10
20
30
40
50
60
Quantity
The demand by all the
consumers of a given good or
service.
Substitution effect The change in the quantity
demanded of a good that results from a change
in price, making the good more or less expensive
relative to other goods that are substitutes.
Income effect The change in the quantity
demanded of a good that results from the
effect of a change in the good’s price on
consumers’ purchasing power.
Movement OF the curve
Caused by a Change in a Determinant
Selling
Price
$6
$5
$4
$3
$2
$1
$0
Quantity
Old
New
0
1
2
3
4
5
6
Inc
1
2
3
4
5
6
7
Dec
0
1
2
3
4
5
Increase in Demand shifts
Price
out or to the right
$6
$5
$4
$3
$2
$1
Old
0
1
2
3
4
5
6
Decrease in Demand shifts in or
Quantity
Why the curve shifts
1 Consumer Incomes
2 Price of Other Goods
3 Consumer Tastes
4 Number of Consumers
5 Consumer Expectations
Or why the curve shifts
1 Consumer Incomes
+tax cuts increase net incomes
Consumers have more money to
spend, demand increases
-the $ depreciates against the
Euro
Imported goods from Europe cost more
dollars,
demand decreases
For Normal Goods!!!
For Inferior Goods
+tax cuts increase net incomes
Consumers switch to better goods,
demand for Hot Dogs decreases
-the $ depreciates against
the Euro
Domestic travel looks better, demand
increases
2 Price of Other Goods
If airlines cut ticket
prices
More demand for
Luggage
Less demand for train
tickets
Tickets and Luggage are compliments
Compliments are consumed or used together
(inverse relationship)
If ticket prices decrease, demand for Luggage
increases
If ticket prices increase, demand for Luggage
decreases
Airlines and Trains are Substitutes
Substitutes replace each other (direct
relationship)
If air tickets increase, demand for Train
tickets also increases
3 Consumer Tastes
-beanie hats make a
comeback
Demand increases
-Hula Hoops go out
of style
Demand decreases
4 Number of Consumers
(also Demographics)
-Hurricanes around
Labor Day
Fewer tourists touring Florida and
the Gulf Coast, demand decreases
More tourists touring, NC and
SC, demand increases
5 Consumer Expectations
-dealers
reduce car
prices in August
Car buyers wait, demand decreases
-heavy
rains have damaged
coffee crop
Consumers expect shortages and higher
prices so they buy more now, demand
increases
Why the curve shifts
1 Consumer Incomes
2 Price of Other Goods
3 Consumer Tastes
4 Number of Consumers
5 Consumer Expectations
Movement ALONG the curve
Consumers responding to a Change in the Price of
the good
Caused by factors related to production of the
Price
good
The Supply Schedule!!
$6
Harder or costlier to produce, pri
goes up
Supply
decrease
$5
P
$4 2
P Q
P
Current
Price
$3 1
P
$2 3
$1
0
increase
P Q
Easier or less expensive to produce,
price goes down
1
Q2 2
Q1 3
Q3
4
5
Curve
What makes the
Supply Curve
Shift??
Demand
6 Quantity
A Change in Demand versus a Change in Quantity Demanded
Price falls from $700
to $600, then
movement along the
demand curve from A
to B—an increase in
quantity demanded
from 3 million tablets
to 4 million tablets.
If consumers’ incomes
increase, the demand
curve will shift to the
right—an increase in
demand.
In this case, the increase in demand from D1 to D2
causes the quantity of tablet computers demanded at a
price of $700 to increase from 3 million tablets at point
A to 5 million tablets at point C.
Selling
Price
Quantity
Supplied
$5
$4
$3
$2
$1
60
40
25
15
10
Graphing:
-Plot the points
-Connect the dots
Price
$6
$5
$4
Upsloping
right
to left
$3
Supply
$2
$1
0
10
20
30
40
50
60
Quantity
Movement OF the curve
Caused by a Change in a Determinant
Selling
Price
$6
$5
$4
$3
$2
$1
Quantity Supplied
Old
New
6
5
4
3
2
1
Inc
7
6
5
4
3
2
Dec
5
4
3
2
1
0
Price
Increase in Supply shifts out
or to the right
$6
$5
$4
Old
$3
$2
Decrease in Supply
$1
0
shifts in or to the left
1
2
3
4
5
6
Quantity
Why the curve shifts
1 Resource Prices
2 Changes in Technology
3 Prices of other goods
4 Number of Producers
5 Producer Expectations
6 Taxes and Subsidies
Or why the curve shifts
1 Resource Prices
-gas is discovered under
CVCC
Supply increases
-Minimum wage goes
up
Supply decreases
2 Changes in Technology
+ If a more powerful
computer is developed
Makes production easier
(and cheaper)
- If stronger pollution
controls are required
Makes production harder
(and costly)
3
Prices of other goods
Shift resources away from high
production cost goods.
Caused by natural disasters or
market price of other goods
4
Number of Producers
+more firms
increase supply
-fewer firms
decrease supply
5 Producer Expectations
about prices and resource
availability
-if
prices are expected to
increase, more production
-if
prices are expected to
decrease, less production
6
Taxes and Subsidies
- taxes discourage production
+ subsidies
encourage
production
Movement ALONG the curve
Response to a Change in the Price of the good
Caused by factors related to consumers
Price
$6
$5
P2$4
P1
Current
Price
$3
P3
$2
Supply
$1
0
1
Q2 2
Q1 3
Q3
4
5
6 Quantity
Why the curve shifts
1 Resource Prices
2 Changes in Technology
3 Prices of other goods
4 Number of Producers
5 Producer Expectations
6 Taxes and Subsidies
A Change in Supply versus a Change in Quantity Supplied
If price rises from $500 to
$600, there will be movement
up the supply curve from point
A to point B—an increase in
quantity supplied by Apple,
Toshiba, Samsung, and the
other firms from 5 million to 6
million tablets.
If the price of an input
decreases, that causes sellers
to supply more of the product
at every price, the supply curve
will shift to the right—an
increase in supply.
In this case, the increase in supply from S1 to S2 causes
the quantity of tablet computers supplied at a price of
$600 to increase from 6 million at point B to 8 million at
point C.
Selling
Price
$5
$4
$3
$2
$1
Quantity
Demanded Supplied
60
10
40
15
25
25
15
40
10
60
Graphing:
-Plot Demand
-Plot Supply
Price
$6
D
S
$5
$4
$3
$2
$1
0
D
S
10
20
30
40
50
60
Quantity
Shifting the Supply Curve
Caused by a change in a Determinant of Supply
Price
$6
$5
decrease
P
$4 2
P Q
P
increase
Current
Equilibrium
$3 1
P
$2 3
P Q
$1
0
Supply
Demand
1
Q2 2
Q1 3
Q3
4
5
6 Quantity
Shifting the Demand Curve
Caused by a change in a Determinant of Demand
Price
$6
$5
P Q
P2$4
P1
decrease
Current
Equilibrium
$3
P3
$2
increase
P Q
$1
0
Supply
1
Q3 2
Q1 3
Q2
Demand
4
5
6 Quantity
Why the curve shifts
1 Consumer Incomes
2 Price of Other Goods
3 Consumer Tastes
4 Number of Consumers
5 Consumer Expectations
Why the curve shifts
1 Resource Prices
2 Changes in Technology
3 Prices of other goods
4 Number of Producers
5 Producer Expectations
6 Taxes and Subsidies