Transcript Supply and demand together!

Supply and Demand
Shift!
We’ve brought Supply and Demand Together, but
what happens when a shifting event occurs?
D
D
$6.00
S
Event: It is discovered
that Lifesavers candy
cures Ebola
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
0
5
10 15 20 25 30 35
Three Steps to Analyzing Changes in Eq’m
To determine the effects of any event,
1. Decide whether event shifts S curve,
D curve, or both.
2. Decide in which direction curve shifts.
3. Use supply-demand diagram to see
how the shift changes eq’m P and Q.
EXAMPLE:
The Market for Hybrid Cars
P
price of
hybrid cars
S1
P1
D1
Q1
Q
quantity of
hybrid cars
EXAMPLE 1: A Shift in Demand
EVENT TO BE
ANALYZED:
P
S1
Increase in price of gas.
STEP 1:
D curve shifts
because
STEP 2: price of gas
affects demand for
D shifts right
hybrids.
because
high gas
STEP
3:
S
curve
doeshybrids
not
price
makes
The shift
causes
an
shift,
because
price
more attractive
increase
in price
of
gas
does
not cars.
relative to other
and quantity
affect
cost of of
hybrid cars.
producing
hybrids.
P2
P1
D1
Q1 Q2
quantity of
hybrid cars
D2
Q
EXAMPLE 1: A Shift in Demand
Notice:
When P rises,
producers supply
a larger quantity
of hybrids, even
though the S curve
has not shifted.
Always be careful
to distinguish b/w
a shift in a curve
and a movement
along the curve.
P
S1
P2
P1
D1
Q1 Q2
quantity of
hybrid cars
D2
Q
EXAMPLE 2:
A Shift in Supply
EVENT: New technology
reduces cost of producing
hybrid cars.
P
S1
S2
STEP 1:
S curve shifts
because
STEP 2: event affects P1
cost of production.
P2
S shifts right
D
curve does
not
because
event
STEPbecause
3:
shift,
reduces cost,
The shift causes
production
technology
makes production
price
to
fallof the
is
not
one
more profitable at
and quantity
to rise.
factors
that
affect
any given price.
demand.
D1
Q1 Q2
quantity of
hybrid cars
Q