chapter 4 supply and demand. agenda market vs economy supply fanpop.com
TRANSCRIPT
Chapter 4Supply and Demand
Agenda Market vs Economy Supply
Fanpop.com
Market What is a market?
Market – What do the following have in common?
Market In economics the term “market” can
have many meanings1. A space for buyers and sellers to interact
Corner store, stock exchange, internet WHERE?
2. All of the buyers and sellers of a good or service Global copper market WHO?
Market3. Demand for a good or service
The housing market is up WHAT?
4. The process of establishing a price Market forces are pushing the value of
the Canadian dollar up HOW?
Studying the Market Economists build
models to explain the market and predict future trends
Econometrics: combines economic theory with statistics to analyze and test economic relationships
Ceteris Paribus Latin: “All things being equal” A key assumption in economic
models To examine cause and effect of two
variables, all other variables must be held constant (ignored)
Assumes everything else will stay the same
Ceteris Paribus - Example If the price of beef increases – ceteris
paribus – the quantity of beef demanded will decrease
Which variables are being held constant? Price of other meats Fear of Mad Cow Trend towards vegetarianism ???
Supply and Demand Demand
The quantity of a good or service that consumers are WILLING and ABLE to buy at a particular price
Able = $$$$ to buy it
Willing - Able
Demand ExampleWould
Love an iPod has lots of $
Would Love an iPod has
$30
Would Like an iPod has lots of $
Would Like an iPod has
$20
Has an iPod
Might buy one for younger brother if
it is cheap
Wants a Zune. Hates Apple.
Has lots of $
Demand SchedulePRICE NUMBER SOLD
$50$40$30$20$10
Demand SchedulePRICE NUMBER SOLD
$50 1$40 2$30 3$20 4$10 5
Demand Curve
Law of Demand
The Quantity Demanded (Qd) varies inversely with price – Ceteris
Paribus
Pg. 77 Questions 1-3 Ready, Set, Go!!
P 77 1 – 31. The Market is one part of the economy2. Willing and able
1. A luxury car2. A Pizza3. A Computer4. A hammer5. A Post Secondary education
3. Price decrease quantity demanded will increase.
1. Income2. Substitution
Law of Demand Law of Demand
As prices go up QUANTITY demanded goes down
As prices go down QUANTITY demanded goes up
Prices
Quantity Demanded Prices Quantity
Demanded
Factors that lead to law ofdemand Substitute Effect: As prices go up we
seek out alternative products or services (CP) If Coca-Cola went up to $3 a can
People would buy Pepsi or PC cola
Income Effect: As prices fall people have more REAL income (Purchasing Power) Some people will use their extra income to buy
more product (CP) If Coca-Cola decreased its price to 0.50 a can
Supply and Demand Supply
The quantity of a good or service that businesses are WILLING and ABLE to provide at a particular price
Willing: Profitable and Ethical Able: Knowledge and Profitable
Willing Able
Willing Able
Willing Able
Supply exampleEach store can sell 1 iPod
Is profitable when the price is
$10
Is profitable when the price is
$20
Is profitable when the price is
$30
Is profitable when the price is
$40
Is profitable when the price is
$50
Supply SchedulePRICE NUMBER
SUPPLIED$50$40$30$20$10
Supply SchedulePRICE NUMBER
SUPPLIED$50 5$40 4$30 3$20 2$10 1
Supply CurveSUPPLY CURVE FOR iPODs
$0
$10
$20
$30
$40
$50
$60
0 1 2 3 4 5 6
Quantity
Pri
ce NUMBER SUPPLIED
Law of Supply
The QUANTITY supplied will increase if price increases and
fall if prices fall, ceteris paribus
Law of Supply Law of Supply
As prices go up QUANTITY supplied goes up
As prices go down QUANTITY supplied goes down
PricesQuantity
Demanded
PriceQuantity
Demanded
Market Equilibrium Where quantity Supplied and
quantity demand are equal This is the point where the most
needs and wants of both consumers and suppliers will be maximised
Efficient use of resources as there is neither a shortage nor a surplus
Supply and Demand Schedule
PRICE QuantityDemanded
Quantity Supplied
$50 1 5$40 2 4$30 3 3$20 4 2$10 5 1
EquilibriumSupply and Demand for iPods
$0
$10
$20
$30
$40
$50
$60
0 1 2 3 4 5 6
Quantity
Pri
ce Quantity SUPPLIED
Quantity DEMANDED
Pe
Qe
E
Surplus P > Pe (Excess Supply)Supply and Demand for iPods
$0
$10
$20
$30
$40
$50
$60
0 1 2 3 4 5 6
Quantity
Pri
ce Quantity SUPPLIED
Quantity DEMANDED
Ps
E
QsQd
Shortage P < Pe (Not enough Supply)
Supply and Demand for iPods
$0
$10
$20
$30
$40
$50
$60
0 1 2 3 4 5 6
Quantity
Pri
ce Quantity SUPPLIED
Quantity DEMANDED
P
E
QdQs
P 79 1-2 P93 7
Replace C with the following Draw a shortage or surplus area if the
price is 2.20 Draw a shortage or surplus area if the
price is 1.80
http://www.cbc.ca/video/#/ID=1449317844
Does demand stay the same
Factors that influence demand (p 81) Income Population Tastes and Preference Future Expectations Prices of substitute goods Prices of complementary goods
Shift in Demand These factors will shift the entire
demand curve to the left or right Shifts to the left will cause both
Quantity Demanded and Price to decrease – CP
Shifts to the right will cause both Quantity Demanded and Price to increase – CP
Change in Quantity Demanded A CHANGE IN PRICE WILL LEAD TO A
CHANGE IN QUANTITY DEMANDED NOT A CHANGE (SHIFT) IN DEMAND
A CHANGE IN PRICE = A SHIFT ALONG THE CURVE
Increase in real income Demand for Flat screen TV -
CPS1
D1
E1P1
Q1
Price
Quantity
Increase in real income Demand for Flat screen TV -
CPS1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Increase in real income Demand for Kraft Dinner - CP
S1
D1
E1P1
Q1
Price
Quantity
Increase in real income Demand for Kraft Dinner - CP
S1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Increase in Population
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eng.htm&usg=__ZPXcDrtPiTJPrf1idxxiTkSbXk4=&h=124&w=192&sz=9&hl=en&start=4&um=1&itbs=1&tbnid=pMruy35llSmgTM:&tbnh=67&tbnw=103&prev=/images%3Fq%3Dcanadian%2Bpopulation%2Bpyramid%2Banimated%26um%3D1%26hl%3Den%26tbs%3Disch:1
Increase in PopulationIncrease in demand
decrease in demand
1965 Diapers
1985 Cars Starter homes
Baby products
2005 Anti-aging products
2025 Canes, caskets, Toys for grandkids
Change in consumer tastes With the advent of the iPod what
happened to demand for mp3 players - CP S1
D1
E1P1
Q1
Price
Quantity
Change in consumer tastes With the advent of the iPod what
happened to demand for iPod’s - CPS1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Change in consumer tastes With the advent of the iPod what happened
to demand for tape players - CPS1
D1
E1P1
Q1
Price
Quantity
Change in consumer tastes With the advent of the iPod what
happened to demand for tape players S1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Change in consumer tastesChange in consumer tastes
Future Expectations What effect will future expectations of the HST and
possible interest rate hike have on the housing market - CP S1
D1
E1P1
Q1
Price
Quantity
Future Expectations What effect will future expectations of the HST and
possible interest rate hike have on the housing market - CP S1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Price of Substitute good The price of beef has doubled. What will happen to
demand for Chicken - CPS1
D1
E1P1
Q1
Price
Quantity
Price of Substitute good The price of beef has doubled. What will happen to
demand for Chicken - CPS1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Price of Complementary Good The price of gas is $2 a litre. What will happen to
demand for hybrid cars - CPS1
D1
E1P1
Q1
Price
Quantity
Price of Substitute good The price of gas is $2 a litre. What will happen to
demand for hybrid cars - CPS1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Price of Complementary Good• The price of gas is $2 a litre. What will happen to
demand for SUVs - CPS1
D1
E1P1
Q1
Price
Quantity
Price of Substitute good The price of gas is $2 a litre. What will happen to
demand for SUVs - CPS1
D1
E1P1
Q1
Price
Quantity
D2
P2
Q2
Factors that could cause a shift in demand T I P E D
Factors that could cause a shift in demand Tastes and Preference Income Prices
substitute goods complementary goods (ex. Price of hotdogs
decreases resulting in increase in demand for hotdogs)
Expectations Demographics (Population)
NOTE
A shift in the demand curve will result in a shift ALONG
the supply curve
Factors that influence supply P E N T UP
Factors that influence supply Production Cost Environment Number of suppliers Technology price of related oUtPuts
Production Cost Supply of plastic if the price of oil
increasesS1
D1
E1P1
Q1
Price
Quantity
S1
D1
E1P1
Q1
Price
Quantity
S2
E2
Q2
P2
Production Cost Supply of plastic if the price of oil
increases
Production Cost Remember suppliers must be
Able Have the capital to produce (technology) Have the labour to produce (Know how)
Willing Produce profitably
Number of suppliers Supply and demand for tools
S1
D1
E1P1
Q1
Price
Quantity
Number of suppliers Supply and demand for tools
S1
D1
E1P1
Q1
Price
Quantity
S2
E2
Q2
P2
Technology Supply and demand for cars with the
introduction of robotic assembly linesS1
D1
E1P1
Q1
Price
Quantity
S1
D1
E1P1
Q1
Price
Quantity
S2
E2
Q2
P2
Technology Supply and demand for cars with the
introduction of robotic assembly lines
Nature and the environment There is a frost in Florida. What will be
the impact on the supply of orangesS1
D1
E1P1
Q1
Price
Quantity
Nature and the environment There is a frost in Florida. What will be
the impact on the supply of orangesS1
D1
E1P1
Q1
Price
Quantity
S2
E2P2
Q2
Prices of Related Goods Oats are discovered to have anti aging
propertiesS1
E1P1
Q1
Price
Quantity
S1
E1
P1
Price
QuantityQ1
D1D1
OATS BARLEY
Prices of Related Goods Oats are discovered to have anti aging
properties what will the impact be on the supply of barley?S1
E2
P1
Q1
Price
Quantity
S1
E1
P1
Price
QuantityQ1
D1D1
OATS BARLEY
D2
P2
Q2
Prices of Related Goods Oats are discovered to have anti aging
propertiesS1
E2
P1
Q1
Price
Quantity
S1
E1
P1
Price
QuantityQ1
D1D1
OATS BARLEY
D2
P2
Q2
P2
Q2
S2
Prices of Related Goods Oats are discovered to have anti aging
propertiesS1
E2
P1
Q1
Price
Quantity
S1
E1
P1
Price
QuantityQ1
D1D1
OATS BARLEY
D2
P2
Q2
P2
Q2
S2
S2E2
P3
Changes in Demand
Prices changes that cause consumers to buy more or
less of a product are represented by a movement
ALONG the demand curveNot a movement of the curve
Changes in Supply
Prices changes that cause businesses to supply more
or less of a product are represented by a movement
ALONG the supply curveNot a movement of the curve
Homework Do case study on page 87 and
Check your understanding on page 88. It is good prep for your quiz.
Study for your quiz on Tuesday
Monday March 26th In class assignment that is due by the
end of class. It will be marked
You can use your notes and textbook but must be completed individually
Those who are not in class on Monday can complete it Wednesday in class
Quiz - Tuesday KNOW YOUR SUPPLY AND DEMAND
CURVES Be able to interpret supply and
demand curves GRAPHS GRAPHS GRAPHS! TIPED and PENTUp
Wednesday Work Period
Starting Chapter 5 – Elasticity
Take up Test
Case study p87 Demand Since 1981 what
has happened to demand for the PC
Is this a shift along the curve or a shift of the curve
Which factors explain your answer
Supply Since 1981 what
has happened to supply for the PC
Is this a shift along the curve or a shift of the curve
Which factors explain your answer
Case study p87 Demand Tastes Preferences
Technology Internet
Gambling Shopping
Price of substitute goods Library Mail Typewriter TIME = $
Population Echo generation grew up with
computers Boomers adopted it
Income Cheaper technology = increase
in real income Expectation
Higher quality Lower Price
Supply Technology
Production Costs Economies of scale
Number of seller Has increased
Environment More energy efficient
Related outputs Computers in everything dive
down cost Costs
Flash memory Fewer moving part
Computers
S1
D1
E1P1
Q1
Price
Quantity
D2
S2
P2
Q2
Check your understandingP88 question 1a. Demand shifts right for product x due to
advertising (TASTES)b. Demand shifts left for product x because
consumers have less income (INCOME)c. Demand shifts left for product x because
consumers switch to product y (PRICE -SUBSTITUTE)
d. Demand shifts right for product x because consumers want to avoid higher future prices (EXPECTATIONS)
Check your understandingP88 question 2a. Supply shifts right as manufacturers are
able to produce X at a lower unit cost (Technology)
b. Supply shifts left as manufacturers face higher unit costs for product x because of wage increase (Production Costs)
c. Quantity supplied of x increases (movement along the curve) because manufacturers want to take advantage of the higher prices (Increase profits)
Check your understandingP88 question 2
d. Supply shifts right as manufacturers face higher unit costs for product x because of tax decrease (Production Costs)
e. Supply shifts left as there are few manufacturers of product X (Number of Producers)