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Supply and Demand in Action

Supply and Demand in Action. The Motion of a “Free Market”. S 1. --------------. P 1. -------------. D 1. Q 1. Equilibrium occurs when Demand = Supply. T-Shirts. Price. E 1. Qty. Soda & Water. Gas & Cars. Key Terms for S & D Unit. Substitute-.

kermit-stevenson
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Supply and Demand in Action

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  1. Supply and Demandin Action The Motion of a “Free Market”

  2. S1 -------------- P1 ------------- D1 Q1 Equilibrium occurs whenDemand = Supply T-Shirts Price E1 Qty

  3. Soda & Water Gas & Cars Key Terms for S&D Unit Substitute- Goods which can “replace” other goods Px good A => Demand good B Compliment- Goods which “go together” (are needed to use the other) Px good A => Demand good B

  4. Changes in Demand • When a Determinant of Demand (TIPSE) changes the entire demand curve will shift left or right • A “shift” in a demand curve is called a change in demand • Right shift is an increase in demand • Left shift is a decrease in demand

  5. If TIPSE changes => Draw a New D-Curve! Determinants of Demand (TIPSE) • Tastes • Incomes • Population • Substitute/Complement Price • Expectations

  6. Example:Change in Demand Event: The price of bottled water increases Market for Soda TIPSE ↓ Price Substitute ↑ ↓ Demand ↑ Price D2 D1 Qty

  7. Worksheet Side #1

  8. Be careful! a “down” shift in supply is an increase in supply Changes in Supply • When a Determinant of Supply (TIN) changes the entire supply curve will shift left or right • A “shift” in a supply curve is called a change in supply • Right shift is an increase in supply • Left shift is a decrease in supply

  9. If TIN changes => Draw a New S-Curve! Determinants of Supply (TIN) • Technology • Input Prices • Number of Sellers

  10. Example:Change in Supply Event: IBM enters the Soda market Market for Soda Price S1 TIN ↓ # of Sellers ↑ ↓ Supply ↑ S2 Qty

  11. Worksheet Side #2

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