Transcript Supply and Demand

Supply and Demand
Presentation copyright © 1999 by Barry Brownstein
The Role of Price
Price acts as a coordinating agent
– transmits information to both consumers
and suppliers
– coordinates so that people cooperate to
promote their separate interests
– provides incentives to act on the
information
 A voluntary exchange will not place unless
both parties will benefit by it

I, Pencil
Not a single person knows how to make me
 wood from a cedar tree, logged, shipped,
manufactured
 graphite from Ceylon
 zinc and copper
 factice is the eraser from rape seed oil in the
Dutch East Indies

Supply and Demand
Price
Supply
demand
p
quantity
q
Tracing Through Coordination
Suppose scientists discover that eating
soybeans prevents cancer, what effect
would that have on the price of soybeans?
corn?
 What effect did the invention of polyester
have on cotton prices?
 If individuals start flossing three times a
day, what would happen to floss prices?

Preventing Coordination
On toll free urban expressways, how is the
scarce space rationed?
 If parking spaces on a college campus are
hard to come by what does that tell you
about the price of a parking permit?
 Rent Controls
 Energy Price Ceilings
 Interest Rate Ceilings
