Demand/Supply
Draw a DEMAND CURVE.
Draw a SUPPLY CURVE.
Demand= downward sloping line
Supply= upward sloping line
What is a PRICE FLOOR and where is it located?
The minimum price for a good or service
Above the equilibrium -- top of the graph
Explain the INCOME SHIFTER
When income increases, demand increases
When income decreases, demand decreases
Explain the FACTORS OF PRODUCTION SHIFTER
When the price of inputs increase, supply decreases
When the price of inputs decrease, supply increases
Which is an example of a NON-PRICE DETERMINANT for the supply of cell phones?
1. An increase in the cost of metals used to make cell phones.
2. Technology breaks at the HQs causing a stop of production.
3. Chinese phone makers export cell phones to the USA.
2. Technology breaks at the HQs causing a stop of production.
What does the LAW OF DEMAND say?
As price goes UP, demand goes DOWN
As price goes DOWN, demand goes UP
What is a PRICE CEILING and where is it located?
A maximum price of a good or service
Below the equilibrium -- bottom of the graph
Explain the SUBSTITUTE SHIFTER
When the price of the good increases, the demand for the sub. increases
When the price of the good decreases, the demand for the sub. decreases
Explain the PROFIT OPPORTUNITY SHIFTER
If it's more profitable to produce another good, producers switch to that good
Chart 1
What would happen if the price of substitute decreases?
Demand curve shifts left
What does the LAW OF SUPPLY say?
As price goes UP, supply goes UP
As price goes DOWN, supply goes DOWN
What is EQUILIBRIUM?
The point where the SUPPLY CURVE and DEMAND CURVE meet (or intersect) on the graph.
Explain the COMPLEMENTARY SHIFTER
When the price of the good goes UP, demand for the comp. goes down
When the price of the good goes DOWN, demand for the comp. goes UP
If the price is expected to increase later, supply now will decrease (but increase later when price goes up)
If the price is expected to decrease later, supply now will increase (but decrease later when price goes down)
Chart 2 - A price ceiling has been placed at $2
Is there a SHORTAGE OR SURPLUS?
And HOW MUCH?
SHORTAGE of 50
What are the DEMAND SHIFTERS?
Income, Substitutes, Complementary, Taste, Population, Expectation
What is a SURPLUS?
SUPPLY>DEMAND
When a trend is in preference, demand goes UP
When a trend is NOT in preference, demand goes DOWN
Explain the TECHNOLOGY SHIFTER
New technology increases the supply
Broken technology/removal of technology decreases supply
Chart 3 - A price floor has been placed at $8
Is there a SHORTAGE OR SURPLUS?
And HOW MUCH?
SURPLUS of 70
What are the SUPPLY SHIFTERS?
Factors of Production, Profit Opportunity, Price Expectation, # of Sellers, Technology, Govt Regulation
What is a SHORTAGE?
DEMAND>SUPPLY
Explain the POPULATION SHIFTER
When a group of people enter or exit a market, demand goes up or down accordingly
Explain the GOVT REGULATION SHIFTER
Increase in govt regulation causes price to increase causing supply to decrease
Decrease in govt regulation causes price to decrease causing supply to increase
Chart 4
Describe the shift in demand from D1 to D2
decrease in the quantity demanded (equilibrium) because the point of intersection with the supply curve shifts to the left