SUPPLY
What happens to the quantity supplied when the price of a product increases?
The Law of Supply — quantity supplied increases when price increases.
The price of movie tickets drops from $12 to $8. More people decided to go to the movies this weekend.
What does this scenario show about demand?
When the price decreases, the quantity demanded increases (Law of Demand).
The price of coffee doubles due to a global coffee bean shortage. Coffee drinkers begin purchasing more energy drinks and matcha lattes instead.
The Substitution Effect
Changes in the number of producers.
When the price of a type of candy doubles, and most consumers stop buying it and switch to chocolate
Elastic Demand
Which of the following is a determinant of supply?
Supply increases because more sellers enter the market.
A popular YouTuber recommends a new energy drink. Suddenly, more teens want to buy it.
What determinant of demand increased?
Change in consumer tastes/preferences increases demand.
Your job recently cut your hours. Now you have to cancel your Taco Tuesday dinners with friends.
The Income Effect
A natural disaster destroys factories and reduces the amount of goods companies can produce.
Conditions due to Disasters or crises.
A local farmer can quickly grow more tomatoes if the price rises.
Elastic Supply
A new technology makes it cheaper for factories to produce shoes.
What happens to supply?
Supply increases — the supply curve shifts RIGHT because new technology makes production cheaper and faster.
The price of hamburgers rises at local restaurants, so more people decide to buy tacos instead. How does this affect the demand for tacos?
Demand for tacos increases — they are a substitute for hamburgers
Airline tickets for domestic flights spike during the summer. Some travelers chose train tickets or car rentals for long-distance trips.
Substitute goods.
Change in the number of consumers.
Gasoline prices rise 15% this month, but consumers only slightly reduce the quantity they purchase for commuting.
Inelastic Demand
If the government places a new tax on the production of soda, what happens to the supply curve and why?
Supply decreases — the supply curve shifts LEFT because the tax raises production costs.
Consumers hear a rumor that the price of laptops will increase next month. As a result, many people rush to buy laptops today.
What happens to current demand for laptops and why?
Demand increases now — expectations of future price increases shift demand RIGHT.
You decide to curb your boredom by downloading game apps on your phone. Your App Store is having a BOGO (buy-one-get-one) half-off deal on apps. You start to question how much you need to buy to keep yourself busy.
The Law of Diminishing Marginal Utility.
You are looking to purchase your first vehicle. You are advised by a friend that "cars are cheaper at the end of the year", so you wait until Black Friday and Christmas ads to release.
Change in consumer expectations.
Oil refineries cannot significantly increase production in the short term, even if oil prices rise sharply.
Inelastic Supply
A seller is willing to supply 50 units of a product at $10, but only 20 units at $5.
Which economic principle does this example best illustrate?
The Law of Supply — producers supply more at higher prices and less at lower prices.
The price of smartphones decreases significantly. As a result, sales of phone cases and wireless chargers also increase.
Why did the demand for phone accessories increase?
Lower smartphone prices raise demand for complementary goods.
Gasoline prices rise sharply. As a result, demand for large SUVs, pickup trucks, and gas-guzzling vehicles declines, while demand for hybrid and electric cars rises.
Complimentary good. (Hybrid and electric cars complement high gas prices)
During an economic downturn, many families cut back on expensive organic groceries and instead buy more frozen meals and canned goods.
Decrease in consumer income
A new smartphone app is released for $5, but when the price rises to $10, most users stop buying it and choose a free alternative.
Elastic Demand