Supply and Demand applied economics.pptx

supply demand applied economics

1. Supply and Demand The Basics

2. Demand Schedule Price QTY $3.50 320 $3.70 300 $3.90 280 $4.10 260 $4.30 240 $4.50 200 $4.70 160 $4.90 120 $5.10 80 $5.30 40 Supply schedule . Price QTY $ 3.50 40 $ 3.70 100 $ 3.90 160 $4.10 200 $4.30 240 $4.50 260 $4.70 280 $4.90 300 $5.10 320

3. What are three tasks that the price system performs for our economy? Rationing of goods and services Determination of wages. Allocation of limited resources.

4. Laws of Supply and Demand What is Demand? The willingness to buy a good or service at all prices What is the law of Demand? If nothing else changes, the quantity demand of a good or service is greater at lower prices than higher. What is Supply? Supply is the quantity of a good or service a firm is willing to produce at all prices. What is the law of Supply? If nothing else changes, firms are willing to supply a greater quantity of good or service at higher prices than lower.

5. Demand Curve for Xbox 360 Price per XBox H G F E C D D B A Quantity Demanded in Billions of Xboxes per Year 75 70 65 60 55 50 45 200 250 300 350 400 450 500 Copyright© 2003 South-Western/Thomson Learning. All rights reserved.

6. Price per Xbox Quantity Demanded in Billions of Xboxes per year F 250 350 D D C D 1 D 1 Copyright© 2003 South-Western/Thomson Learning. All rights reserved. Movement along the curve versus shifts in the Demand curve

7. Factors that will cause a shift in demand (decrease or increase) P rice of other goods ( substitute or complementary) O utlook (consumer expectation of future income and prices) I ncome (normal goods versus inferior goods) N umber of potential customers (pop.of market) T aste (fads or fashions)

8. Supply Curve for Xbox 360 S S a b c e f g h 90 80 70 60 50 40 500 450 400 350 300 250 Price per Xbox Quantity Supplied in Billions of Xboxes per Year 30 200 Copyright© 2003 South-Western/Thomson Learning. All rights reserved.

9. Movements along versus Shifts of a Supply Curve S S Price per XBox Quantity Supplied in Billions of XBox per Year c f S 1 S 1 310 $400 Copyright© 2003 South-Western/Thomson Learning. All rights reserved.

10. Factors that will cause a shift in supply (decrease or increase) P roductivity (Improvements in machines and production processes of a good or service) I nputs ( Change in the price of inputs required to produce the good or service.) G overnment Actions ( Subsidies, Taxes and Regulations) T echnology (Improvements in machines and production processes of a good or service) O utputs ( Price changes in other products produced by the firm) E xpectations (outlook of future prices and profits) S ize of Industry (Number of firms in the industry)

11. Equilibrium Equilibrium: The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change. Shortage or excess demand: The condition that exists when quantity demanded exceeds quantity supplied at the current price. Surplus or excess supply: The condition that exists when quantity supplied exceeds quantity demanded at the current price.

12. Supply-Demand Market Equilibrium D D G A S S 90 80 70 60 50 40 $500 450 400 350 300 250 Price per xbox 360 Quantity in Billions of Xbox 360 per Year 30 200 E g a Copyright© 2003 South-Western/Thomson Learning. All rights reserved.

13. Excess Demand Excess demand , or shortage , is the condition that exists when quantity demanded exceeds quantity supplied at the current price. When quantity demanded exceeds quantity supplied, price tends to rise until equilibrium is restored.

14. Excess Supply Excess supply , or surplus , is the condition that exists when quantity supplied exceeds quantity demanded at the current price. When quantity supplied exceeds quantity demanded, price tends to fall until equilibrium is restored.

15. Changes in Equilibrium (IRDL) Increase in demand leads to higher equilibrium price and higher equilibrium quantity. Increase in supply leads to lower equilibrium price and higher equilibrium quantity.

16. Changes in Equilibrium (IRDL) Decrease in demand demand leads to lower price and lower quantity exchanged. Decrease in supply leads to higher price and lower quantity exchanged.