PriceP

Quantity DemandedQd

$9 28 3

7 5

6 9

PriceP

Quantity DemandedQd

$9 28 3

7 5

6 9P

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

To be on thedemand curvea person mustbe WILLINGand ABLE topurchase theproduct or service.

PriceP

Quantity DemandedQd

$9 28 3

7 5

6 9P

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

There is an___________relationshipbetween priceand quantity.

inverse

Q

9

2

8

3

7

5

6

9

D

Quantity demanded--it is the amount that will be purchased at a specific P.

Definitions:

Demand--it is a schedule of quantities of goods and services that will be purchased at various prices at a specified time, all other things held constant.

Q

9

2

8

3

7

5

6

9

D

Qd just a point on thecurve.

is the entirecurve.

Price changes Quantity Demanded

Price DOES NOT CHANGEDEMAND!!!!!!!!

Only one variable Qd

PRICE

PRICE DOES NOTDEMAND!!

GUESS HOW MANY DETERMINANTS OFDEMAND THERE ARE?

8And if you don’t memorize these variables, YOUWILL FAIL THIS CLASS!!

ARE THERE ANY QUESTIONS?

Eight Determinants of Demand:

1. # of consumers

6$36.95

Eight Determinants of Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

As people’s incomes go up demand fornormal goods increases. As people’s incomego down, demand for normal goods decrease.

As people’s incomes go up demand forinferior goods decreases. As people’s incomego down, demand for inferior goods increases.

______Used Furniture Store ______Lazy Boy Store

$25

Eight Determinants of Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

Eight Determinants of Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

5. Price of related products: Substitutes

Eight Determinants of Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

5. Price of related products: Substitutes

6. Price of related products: Complements

Eight variables that shift Demand:

1. # of consumers

2. Income--Normal Goods

3. Income--Inferior Goods

4. Preferences

5. Price of related products: Substitutes

6. Price of related products: Complements

7. Expected future P’s by consumers

8. Expected future Y by consumers

Your market is:

The price of airline tickets doubles, what happens to the market for bus tickets?

Increase inprice of related product—Substitute

Bus Tickets

P

Q

S

D

P

Q

D1

P1

Q1

PriceP

Quantity SuppliedQs

$6 27 3

8 5

9 9

Q

S

Quantity supplied--it is the amount that will be sold at a specific P.

Definitions:

Supply--it is a schedule of quantities of goods and services that will be sold at various prices at a specified time, all other things held constant.

P

Qs just a point on thecurve.

is the entirecurve.

Price changes Quantity Supplied

Price DOES NOT CHANGESUPPLY!!!!!!!!

Q

SP

Qs just a point on thecurve.

is the entirecurve.

Only one variable Qs

PRICE

PRICE DOES NOTSUPPLY!!

GUESS HOW MANY DETERMINANTS OF SUPPLY THERE ARE?

5And if you don’t memorize these variables, YOUWILL FAIL THIS CLASS!!

ARE THERE ANY QUESTIONS?

Five determinants of Supply:

1. # of suppliers

2. Costs

3. Physical Availability of Resources

4. Technology

5. Expected Future Prices by Suppliers

In English pubs, ale is ordered by pints and quarts.

So in old England, when customers got unruly, the bartender would yell at them mind their own pints and quarts and settle down. It's where we get the phrase "mind your P's and Q's"

P

Q

How did the termsP’s and Q’s comeabout?

There are four steps in figuring out supplyand demand graphs:

1. DON’T THINK!

2. Which curve is affected and why?

3. Is it an increase or a decrease?

4. JUST DRAW IT!

Your market is:

What happens to the market for oranges whenthere is a frost that hits Florida?

P

Q

S

D

P

Q

S1

P1

Q1

Decrease inthe physicalavailabilityof resources.

Oranges

Your market is:

What happens to the market for downloaded music when the price of an MP3 player or Ipod goes down?

Decrease in the price ofa complement.

Downloaded Music

P

Q

S

D

P

Q

D1

P1

Q1

Your market is:

What happens to the market for downloadedmusic when the royalties paid to the song artist goes up?

Increase incosts.

Downloaded Music

P

Q

S

D

P

Q

S1

P1

Q1

Your market is:

The U.S. goes through a boom economy, whathappens to the market for steak?

Increase inincomes—Normal goods.

Steak

P

Q

S

D

P

Q

D1

P1

Q1

Your market is:

The price of milk doubles; what happens tothe market for cereal?

Price of related product—complement.

Cereal

P

Q

S

D

P

Q

D1

P1

Q1

Your market is:

U.S. automakers use robots to produce its cars, what happens to the market for foreign automobiles?

Price of related product—substitute.

Foreign autos

P

Q

S

D

P

Q

D1

P1

Q1

Your market is:

The price of airline tickets doubles, what happens to the market for bus tickets?

Increase inprice of related product—Substitute

Bus Tickets

P

Q

S

D

P

Q

D1

P1

Q1

You can MAKE MONEY by knowingthe laws of supply and demand.

Major Drought Hits Brazil

You can SAVE MONEY by knowingthe laws of supply and demand.

You can tell what PEOPLE ARE SAYING

when you know the laws of supply and demand.

Lee Iacocca

                           

(Arizona Daily Star, Sep. 9--Two University of Arizona students were arrested and one was Tasered after being turned away from Saturday night's home football game because UA oversold the student section. An officer was assaulted, police said.

The UA sold 11,000 passes for 10,000 seats, a common practice, UA officials said.

UA police will meet with the athletics department to determine what needs to be done to prevent this from happening in the future, Mejia said.

2 students arrested in disturbance at UA game: 1 man Tasered; Zona Zoo seats were oversold

U of A police should meet with Reff’s ECON 200class to determine what “needs” to be done toprevent this from happening in the future.

P

Q

S

D

10,000

$95

11,000

P

Apple Inc. learned last week how harsh upset customers can be when it lowered the price of its $599 iPhone by $200, angering the loyal fans who paid full price when the trendy product was launched in June.

P

Q

D

1 million

$599

$399

Q

Job losses push U.S. closer to recession; first drop in four years

Published: Saturday, September 08, 2007

P

Q

S

D

P

QG & S

D1

P1

Q1

Faculty at U of A

Questions for Supply and Demand Homework Exercise

Skip Questions 5 and 6.

Assume that the economy of the country of Alpha is experiencing increasing unemployment. Steak is considered a normal good in Alpha. Using the supply and demand graph illustrate the impact of the increasing

unemployment on the market for steak in Alpha.

Assume that the economy of the country of Alpha is experiencing

increasing unemployment. Hamburger is considered an inferior good in

Alpha. Using the supply and demand graph illustrate the impact of the increasing unemployment on the market for hamburger in Alpha.

The country of Alpha experiences an increase in immigration that leads to an

additional one million consumers. What will be the affect on this

immigration on Grog the popular drink of Alpha. Illustrate the impact on price and output using a supply and demand

graph.

A plague has a devastating impact on the population of Alpha. Illustrate

using a supply and demand graph how this will impact the market for chicken.

S

D

P

Q

$8

8

$15$14

$13$12

$11$10

$9

$7$6

$5$4

$3$2

$1

Area of consumersurplus

Area of producersurplus

P

Q

S

D

P

Q

Fair market price of apartments in NYC is $1,600

$1,600

NYC has rent controls which are price ceilings. Where do you think price CEILINGS are set? BELOW or ABOVE the market price?

Pc

Pc are setBELOW theequilibriumprice.

is the highest pricethat can becharged in themarket.

P

Q

S

D

P

Q

$1,600

Pc

Rent controls are a price set by the government tokeep prices of apartments down. In NYC the government sets the HIGHEST PRICE that can becharged for a one-bedroom apartments at $1,200. Landlords cannot charge above this price.

$1,200

P

Q

S

D

P

Q

$1,600

Pc$1,200

Looking at the graph, what occurs when the price isset BELOW the equilibrium price when a PRICECEILING is set?

The Quantity Demanded > the Quantity Supplied

QdQ<Qs

Anytime Qd > Qs there is a SHORTAGE in the market.

P

Q

S

D

P

Q

$1,600

Pc$1,200

QdQ<Qs

This is the numberof apartments landlordsare willing to supply atthis price (Qs).

This is the number ofpeople willing to rent apartments at this price (Qd).

This is a SHORTAGE.

P

Q

S

D

P

Q

$1,600

Pc$1,200

QdQ<Qs

_________ is looking for an apartment in NYC.

PRICE CEILING—THE HIGHEST PRICE THE SELLER CAN SELL THE PRODUCT.

P

Q

S

D

P

Q

$1,600

Pc$1,200

QdQ<Qs

In 1975

$169

$69Chicago

Minneapolis

Los Angeles

SanFran.

To fly from Chicago toMinneapolis it cost

To fly from Los Angelesto San Francisco it cost

WHY?

In 1975

$169

$69

Roughly the same number of people were flyingbetween these two destinations and roughly the same number of airplanes were flying these two routes. So why such a difference in the prices of these airfares? What is different between these two routes?

This is INTERSTATEtravel.

This is INTRASTATEtravel. (inside the state)

Chicago

Minneapolis

Los Angeles

SanFran.

P

Q

S

D

P

QInterstate travel was regulated by the Civil Aeronautics Board. It set the prices for flightstraveling across state lines. It set a PRICE FLOOR.

Where is a PRICE FLOOR set? Above or BELOWthe equilibrium price? ABOVE.

Pf

P

Q

S

D

P

Q

Pf

Why is it called a price FLOOR if it is set ABOVEthe equilibrium/market price?

Because it is the LOWEST price that can be chargedby law.

P

Q

S

D

P

Q

Pf

Which route is the market price and which routeis the PRICE FLOOR?

The market price is $69, the price charged betweenLos Angeles and San Francisco.

$69

The PRICE FLOOR is $169, the price charged between Chicago and Minneapolis.

$169

$69

$169

P

Q

S

D

P

Q

Pf

$69

$169Whenever there isa PRICE FLOORthe QuantitySupplied isgreater than theQuantity Demanded.

QsQd <

$69

$169

P

Q

S

D

P

Q

Pf

$69

$169

A price floorcauses a SURPLUSin the market.

QsQd <

$69

$169

Qd ofseats

Qs ofseats<

P

Q

S

D

P

Q

Pf

$69

$169

QsQd <

What price did the airlines charge customer flyingfrom Chicago to Minneapolis? $169

If airlines couldn’t compete by price since theyall charged the same price, how did airlines compete?

Service: Best food, bigger seats, prettiest flightattendants.

Surplus of seats available becauseof the price floor.

http://www.1jetsettravel.com/Picts/22Plncbn.jpg http://www.transport-pf.or.jp/english/sky/airplane/exploration/img/jal-mesi.jpg

Airlines competed byserving better food.

Prettiest stewardess

As deregulation of the airline industry tookplace in 1978, what happened to the pricefloor?

P

Q

S

D

P

Q

Pf

$69

$169

QsQd

As deregulation of the airline industry tookplace in 1978, what happened to the pricefloor?

P

Q

S

D

P

Q

Pf

$69

$169

QsQd

The price floor is eliminated, lowering the price to the market price. This gets rid of the surplus. People get to fly for lower prices, but the airplanes are now more crowded.

The government of Alpha imposes a per-unit tax on Brureff soda. Given that Brureff has a relatively elastic

demand, illustrate the impact of this tax on price and quantity using a

supply and demand graph.

The government of Alpha imposes a per-unit tax on Brureff soda. Given

that Brureff soda has a perfectly inelastic demand, illustrate the impact of this tax on price and quantity using

a supply and demand graph.

Coffee and cream are complementary goods. An unexpected period of bad weather adversely affects the coffee

bean crop. Use a supply and demand graph to illustrate the affect of this bad weather on the price and quantity of

coffee.

Coffee and cream are complementary goods. An unexpected period of bad weather adversely affects the coffee

bean crop. Use a supply and demand graph to illustrate the affect of this bad weather on the price and quantity of

cream.

The two favorite juice drinks in the Alpha economy are reffberry and fruitbru.

Consumers enjoy both drinks but some have a slight preference for reffberry while others have a slight preference for fruitbru.

The makers of reffberry have invested in new technology that increases their

productivity. This technology is not yet adaptable for the production of fruitbru.

Use a supply and demand graph to illustrate the impact of the new technology

on the reffberry market.

The two favorite juice drinks in the Alpha economy are reffberry and fruitbru. Consumers

enjoy both drinks but some have a slight preference for reffberry while others have a slight preference for fruitbru. The makers of

reffberry have invested in new technology that increases their productivity. This technology is

not yet adaptable for the production of fruitbru. Use a supply and demand graph to illustrate the

impact of the new technology on the fruitbru market.

Gasoline powered autos and electric powered autos are substitute goods and have relatively elastic demands.

Assume that the price of gasoline increases by 30 percent. Use a supply

and demand graph to illustrate the impact of this increase in the price of gasoline on the market for gasoline

powered autos.

Gasoline powered autos and electric powered autos are substitute goods and have relatively elastic demands.

Assume that the price of gasoline increases by 30 percent. Use a supply

and demand graph to illustrate the impact of this increase in the price of

gasoline on the market for electric powered autos.

A major news source reports an outbreak of salmonella affects the

peanut butter snacks industry. Use a supply and demand graph to illustrate

the immediate impact on price and quantity of this news

In the past, the cost of Private University is $45,000 per year and the cost of State University

is $17,000 per year. Both universities have a fixed number of seats available for the coming

school year. Both schools have excellent academic reputations. A major recession

occurs. Assume that both universities have tuition costs that are influenced by the number of applications they receive. Use a supply and demand graph to illustrate the impact of the recession on price and quantity for Private

University.

In the past, the cost of Private University is $45,000 per year and the cost of State University

is $17,000 per year. Both universities have a fixed number of seats available for the coming

school year. Both schools have excellent academic reputations. A major recession

occurs. Assume that both universities have tuition costs that are influenced by the number of applications they receive. Use a supply and demand graph to illustrate the impact of the

recession on price and quantity for State University.

The domestic steel industry of Alpha competes with imported steel from the country of Tucumcari. Assume that the government of Tucumcari

increases subsidies to its steel industry. Use a supply and demand graph to

illustrate the impact of the subsidies on steel made in Tucumcari.

The domestic steel industry competes with imported steel from the country

of Tucumcari. Assume that the government of Tucumcari increases subsidies to its steel industry. Use a

supply and demand graph to illustrate the impact of the subsidies on the price and quantity of steel made in

Alpha.

The domestic steel industry competes with imported steel from the country

of Tucumcari. Assume that the government of Tucumcari increases subsidies to its steel industry. Use a

supply and demand graph to illustrate the impact of the subsidies on the

wage and quantity of workers in the market for steel workers in Alpha.

The pork industry is dominated by large corporate farms that pollute the underground water table with waste material from the slaughter of pigs.

The farms ignore this pollution. Use a supply and demand analysis to

illustrate the impact of this avoidance on the pork industry.

Assume that the favorite dating activity of teenagers is going out to dinner. The second favorite dating

activity of teenagers is going out for ice cream. Assume that because of a recession there will be far fewer jobs available for teenagers this summer. Use a supply and demand graph to

illustrate the impact of fewer jobs on the price and quantity of the typical

dinner meal at a restaurant.

21. Use a supply and demand graph to illustrate the effects on price and quantity of milk from the following simultaneous events:

A. The government provides additional money for college

scholarships directly to high school seniors.

Masons take a 25% cut in pay

P

Q

S

D

P

Q

D1

P1

Q1

Increase in demand

Increase in supply

S

Q1

Quantitywill definitelyincrease.

Price isIndeterminate

It will eithergo up.

P1

PS

D

P

Q

D1

P1

Q1

Increase in demand

Increase in supply

S

Q1

Quantitywill definitelyincrease.

Price isIndeterminate

It stayed thesame.

P1

PS

D

P

Q

D1

P1

Q1

Increase in demand

Increase in supply

S

Q1

Quantitywill definitelyincrease.

Price isIndeterminate

It went down.

P1

What happens to the price and quantity if thereis an increase in demand and a decrease in supply?

Price definitely goes up; Quantity is indeterminate

What happens to the price and quantity if thereis a decrease in demand and an increase in supply?

Price definitely goes down; Quantity is indeterminate

What happens to the price and quantity if thereis a decrease in demand and an decrease in supply?

Price is indeterminate; Quantity will definitely decrease