SUPPLY AND DEMANDSHIFTS

Price

Quantity

Match the case with the important concept:  

____ 1. Marbury v Madison

____ 2. McCulloch v Maryland

____ 3. Gibbons v Ogden

____ 4. Plessy v Ferguson

____ 5. Brown v Board of Ed, Topeka

____ 6. The Heart of Atlanta v U.S.

____ 7. Swann v Charlotte-Mecklenburg

____ 8. Korematsu v US

a) Schools have to bus kids to desegregate b) “Separate but equal”c) US could take away civil rights in times of ward) Overturned Plessy v Fergusone) Hotel owners had to follow segregation decisionf) Said Fed. Gov’t could regulate interstate commerceg) Set up judicial reviewh) Said national government was Supreme to states

Warm-Up

1. What happens to the quantity demanded when the price goes UP?

2. What happens to the quantity demanded when the price goes DOWN?

3. At what point are supply and demand equal?

4. How do business owners react to a shortage?

5. How do business owners react to a surplus?

Review from yesterday

Price

$

Quantity

Supply

Demand

SUPPLY AND DEMANDSHIFTS

Price

Quantity

Price

Quantity

Objectives

• Explain how supply and demand shift and affect the price of a good or service

Demand Curve

Price

Quantity

As price increases, quantity demanded decreasesD1

Demand Schedule

• Demand Schedule: table of how much people are going to buy at the various prices.

• Ex. Pizza Demand Schedule.– How many pizzas are

people willing to buy at $1.50?

– As the price of pizza increased what happened to demand?

Price Quantity

$.50

$1.00

$1.50

$2.00

$2.50

8

5

7

2

1

Law of Demand“The UP and Down”

• As price goes up quantity goes down

• As price goes down quantity goes up

• People buy less goods/services at higher prices then they do at lower prices.

• If there was an increase in demand for CDs what would that mean?

• If there was an decrease in demand for CDs what would that mean?

Illustration of Demand Shift

• Increase in Demand = curve shifts to the right

• Decrease in Demand = curve shifts to the left.

Price

Quantity

D1 D2

Quantity

Price

D1D2

The less you buy the more you will move to the left!

Why does demand shift?• Demand can increase (move right) and Decrease

(move left) depending on certain conditions in the market.

– There are 6 factors affecting demand

Demand Factors

• 1. Consumer Disposable income: income left over after necessities are purchased. More $$ to spend on luxuries increases demand for them.

• Example: If US Gov’t gave citizens a tax credit ($$$) then people would have more money to spend (more disposable income). Would demand increase or decrease?

Demand Factors

• 2. Consumer tastes: popularity of a product

• Example: Consumers who used to prefer board games now prefer video games. What happened to demand for board games?__________

Demand Factors

• 3. Consumer expectations: what consumers expect to happen in the future

• Example: Consumers expect that a new version of the iPod will come out around Christmas. What happened to demand for the OLD iPod?

Demand Factors

• 4. Number of consumers: how many people live in a certain area

• Example: A new housing development was built in Enfield. Did the number of consumers in Enfield increase or decrease? So what happened to demand?

Demand Factors

• 5. Substitutes: competing products that can be exchanged when the price of one becomes too high. Honda & Toyota

• Example: Dell raised the price of its laptops, so consumers started to buy the lower priced Sony laptop. What happened to demand for Dell laptops?

WHAT IS ANOTHER SUBSTITUE GOOD YOU CAN THINK OF?

• 6. Complementary goods: Products that are used together.

• Example: DVD players have become popular among consumers. What happened to demand for DVDs?

WHAT IS ANOTHER SET OF COMPLEMENTARY GOODS YOU CAN THINK OF?

Price Elasticity• When the price of a good is elastic that

means it can change a lot and easily.– If there are no substitutes for a good the price

is not elastic (inelastic).

Ex: water, eggs, milk = inelastic

BUT

sugar = elastic, b/c you could use splenda or sweet and low.

Supply Curve

Price

Quantity

As price increases, quantity supplied increases.

Because producers would rather sell goods at a higher price

S1

Supply Schedule

• Supply Schedule: table of how much people are willing to sell at various prices

• Ex. Pizza Supply Schedule.– How many pizzas are

supplied at $1.00?– As the price of pizza

increased what happened to supply?

Price Quantity

$.50

$1.00

$1.50

$2.00

$2.50

1

5

2

7

8

Law of Supply“The UP UP DOWN DOWN”

• As price goes up quantity goes up

• As price goes down quantity goes down

• Producers make more goods/services at higher prices then they do at lower prices.

Illustration of Supply Shift• Increase in Supply =

curve shifts to the right

• Decrease in Supply = curve shifts to the left.

Price

Quantity

S1

S2

Quantity

Price

S2

S1

Why does supply shift?

• Supply can increase (move right) and Decrease (move left) depending on certain conditions in the market.

– STOP and Think…if it reduces the cost of production (cheaper to produce) then supply of that good went ____.

Supply Factors

• 1. Number of suppliers: more suppliers = more supply

• Example: A new shopping plaza opened on 301 in Enfield. Did the # of suppliers increase or decrease? Did supply increase or decrease?

Supply Factors

• 2. Government Regulations: tighter government regulation of production makes it more expensive to supply goods decrease in supply

• Example: Congress raised the minimum wage to $6.55 an hour from $7.25. What is the impact for fast food restaurants? Did the supply of fast food increase or decrease?

Supply Factors

• 3. Taxes: Higher taxes raises business costs (supply decrease), lower taxes reduces them (supply increase)

• Example: Congress cut the tax on American corporations to try and boost production in the United States. Did costs for corporations go up or down? Did supply increase or decrease?

Supply Factors

• 4. Subsidies: gov’t payment to an individual, business, or group to reduce the cost of production.

• Example: Congress gave all corn producers a subsidy for each bushel of corn they produce. Did the cost of corn production go up or down? Did the supply of corn increase or decrease?

Supply Factors

• 5. Producer Expectations: If producers think that consumer demand will drop, then they reduce supply. If they think demand will increase then they increase supply.

• Example: As the weather gets warmer near the end of the school year clothing stores expect consumers will want to buy summer clothes. Did the supply of winter clothes increase or decrease? Did the supply of SUMMER clothes increase or decrease?

Fun with Shifts!

• 1.

Scenario What changes?

What factor?

Increase or Decrease?

Because of a booming economy there was a rise in disposable incomes

• 1.

Scenario What changes?

What Factor?

Increase or Decrease?

Congress just voted to raise taxes on corporations to pay for entitlement programs

Quantity

• 2.

Scenario What changes?

What Factor

Increase or Decrease?

The price of coffee is rising causing people to want to drink more tea instead, b/c tea is cheaper

Scenario What changes?

Demand Factor

Increase or Decrease?

Consumers expect that a new more fuel efficient SUV will come out and so they stop buying normal SUVs

• 2.

Scenario What changes?

What Factor

Increase or Decrease?

Congress just passed a bill giving all cotton producers $2 for every bushel of cotton produced

Scenario What changes?

What Factor?

Increase or Decrease?

The number of consumers in Halifax County grew when an apartment complex was built

• 5.

Scenario What changes?

Demand Factor

Increase or Decrease?

The popularity of beanie babies has declined as consumers decide to purchase higher technology toys

• 5.

Scenario What changes?

What

Factor?

Increase or Decrease?

Producers think that demand is going to drop for Regular TVs when all TVs go to Hi-Def.

• 6.

Scenario What changes?

What Factor?

Increase or Decrease?

The popularity of iPods has led to consumer demand for iPod speakers and iTrip