THE PRICE SYSTEMEverything Demand and Supply

Why is te price of gas so low?

OPEC Members

Cartel More oil is

being released

Drives down prices

Price System

Compromise or balance Between consumers and producers Between demand and supply

Benefits? P. 97

Information Incentives Choice Efficiency Flexibility

Benefits? P. 97

Information Ability to gather information to make informed

decisions – how much to make/relative worth of a good Incentives

To participate in the market mostly based on price Choice

Choice of products supplied – competition Efficiency

Wise use of resources Efficiency – movement of information

Flexibility Ability to deal with change – adjusted prices

Limitations (Market Failures) p. 101

Externalities All costs and benefits not accounted for

- negative = pollution- positive = income from

Palmer H.S. Public Goods

Fire, police, schools Instability

Flexibility results in changes

Demand

The amount of a good or service that a consumer is willing and able to buy At a given price and given time

Law of Demand

The quantity of a good or service that consumers will buy varies inversely with the price of the good or service

PQD P

QD

Supply

The amount of a good or service that seller are willing and able to offer for sale At a given price and given time

Law of Supply

The quantity of a good or service that will be offered for sale varies in direct relation to the selling price

PQSP

QS

ARE YOU READY?

Stand up!

S and D Posse

Demand and Supply

P

Q

DS

-Market Clearing Price-Equilibrium

D<S - Surplus

S<D - Shortage

Where the Magic

Happens! S and

D unite

DEMAND DETERMINANTSForces that influence demand

other than price.

SNOOP LIONPocket Like Its Hot

What other factors create a change in demand

besides price?

Determinants in Demand

Consumer tastes and preferences What people like and don’t like

Market Size The size of the population

Income The amount of money people have

Prices of Related Goods Substitute goods

Similar goods (peanut butter/Almond butter Complementary goods

Goods used with another good (Iphone/protective case) Consumer Expectations

Anticipation of a change in the money you have Anticipated price change

Shifts on the graph?

INCREASE IN DEMAND DECREASE IN DEMAND

D1

D2

P

Q

D1

D2

P

Q

Shifts to the right

Shifts to the left

Practice Demand Shifts

Directions: Read the problem Identify the determinant Draw the shift.

Practice Demand Shifts

To stimulate the economy the US government announced that all tax payers will receive an additional $5,000 deductible on their 2014 taxes.

There is a 10 for 10 sale on Doritos at King Soopers. How would this change the demand curve for the Kroger Brand flavored corn chips?

Victoria Secret airs its annual fashion show on December 9th. How will this impact the demand for VC products.

Practice Demand Shifts

Christy Sports is running a ½ off sale on all 2013 snowboards. What impact will this have on the demand for snowboard boots that they have in stock?

Today, the front page of the newspaper read, “Recording artist, Taylor Swift, busted for providing funds to terrorist groups in Germany, Syria, and Pakistan. Groups had plans to use weapons against the U.S. with the aid.” How does this impact the demand for Taylor Swift CDs?

What other factors create a change in supply besides

price?

Determinants in Supply

Change in the factors of production (resources) Any price change for a resource increases or

decreases a business’s production costs Government Tools

Taxes: required payment of money to the government to help fund government services

Subsidies: payments to private businesses by government.

Regulations: rules on how businesses can conduct business.

Technology Makes production more efficient and less expensive

Supply Determinants Cont.

Competition Competition tend to increase supply

Prices of Related Goods Prices of related goods can affect the supply

of another product Substitute Complementary

Producer Expectations Decisions based on expectation of future

income

Shifts on the graph?

INCREASE IN SUPPLY DECREASE IN SUPPLY

S1

S2

P

Q

S2

S1

P

Q

SHIFTS RIGHT

SHIFTS LEFT

Practice Supply Shifts

Last year Levi’s came out with a line of jeans made with organic cotton. In October the workers in India who harvested the organic cotton went on strike to fight for increased wages and won. Draw the shift in supply of Levi’s organic line.

There is a market shortage of gasoline and the government is expected to help with the crisis. The government decides to provide a cash incentive to any refinery that is willing to produce more gas. Draw the shift in supply of gasoline.

Practice Supply Shifts

Virus has always produced their snowboard line by hand. This year they decided to change their production to the assembly line method. Draw the shift in supply o f Virus snowboards.

Farmers all over the U.S. traditionally grew wheat. Over the past two years auto companies began making more alternative-fuel automobiles that use ethanol. Draw the supply shift for corn grown by U.S. farmers.

Practice Supply Shifts

Last month there were three burrito shops downtown. Over the past three weeks two for the burrito shops closed down. Draw the shift in the supply of burritos.

The Denver Nuggets are on the winning streak that is expected to continue through the season. Draw the supply curve and shift for Nuggets jerseys.

Shifts and Equilibrium

Increase in Demand

Result Price Increases Quantity Increases

D1 SD2

Shifts and Equilibrium

Decrease in Demand

Result Price Decreases Quantity

Decreases

D1 S

D2

Shifts and Equilibrium

Increase in Supply Result Price Decreases Quantity Increases

D S1

S2

Shifts and Equilibrium

Decrease in Supply Result Price Increases Quantity

Decreases

D S1S2

For Each Situation

Identify the determinant Is it a determinant of supply or demand?

Draw the graph Draw the shift that occurs Identify how it will impact the equilibrium

P? Q?

Sample Problems

It is reported in the news that Kelly Clarkson is associated with an extremist religious group who advocates for pluralism and human sacrifice. Her character is questioned and her popularity begins to fade.

Horizon milk company introduces a strawberry milk. People desire fewer hormones than are present in Nesquik.

Sample Problems Cont.

Due to a recent hurricane the tomato fields in Florida were demolished. How will this change the market of canned tomato?

The Toms manufacturer invested in the company by buying new equipment with quicker technology.