Transcript 1.8-_Shifting_Demand_and_Supply

Unit 1-8: Basic
Economic Concepts
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Supply and Demand Analysis
Easy as 1, 2, 3
1. Before the change:
• Draw supply and demand
• Label original equilibrium price and quantity
2. The change:
• Did it affect supply or demand first?
• Which determinant caused the shift?
• Draw increase or decrease
3. After change:
• Label new equilibrium?
• What happens to Price? (increase or decrease)
• What happens to Quantity? (increase or decrease)
Let’s Practice!
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S&D Analysis Practice
1. Before Change (Draw equilibrium)
2. The Change (S or D, Identify Shifter)
3. After Change (Price and Quantity After)
Analyze Hamburgers
1. New grilling technology cuts production
time in half
2. Price of chicken sandwiches (a
substitute) increases
3. Price of hamburgers falls from $3 to $1.
4. Price for ground beef triples
5. Human fingers found in multiple burger
restaurants
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1. New grilling technology cuts production
time in half
Price
S
S1
Pe
P decrease
Q increase
P1
D
Qe Q1
Quantity
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2. Price of chicken sandwiches (a
substitute) increases
Price
S
P increase
Q increase
P1
Pe
D
Qe Q1
D1
Quantity
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3. Price of hamburgers falls from $3 to $1.
Price
S
Shortage
Pe
Qd increase
Qs decrease
P1
D
Qs
Qe
Qd
Quantity
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4. Price for ground beef triples
Price
S1
P1
Pe
S
P increase
Q decrease
D
Q1 Qe
Quantity
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5. Human fingers found in multiple burger
restaurants
Price
S
P decrease
Q decrease
Pe
P1
D1
Q1 Qe
D
Quantity
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Double Shifts
• Suppose the demand for milk increased at
the same time as production technology
improved.
• Use S&D Analysis to show what will
happen to PRICE and QUANTITY.
Double Shift Rule:
If TWO curves shift at the same time,
EITHER price or quantity will be
indeterminate (ambiguous).
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Demand increases AND supply increases
Price
S
S1
P1 Pe
D
P indeterminate
Q increase
Qe
D1
Q1 Quantity
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Trick: Draw it out
separately and
combine the results
P indeterminate
Q increase
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What if supply
increases and
demand falls?
P decrease
Q indeterminate
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What if supply
decreases and
demand falls?
P indeterminate
Q decrease
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Supply and Demand
Practice Worksheet
14
Example of Voluntary Exchange
Ex: You want to buy a truck so you go to the local
dealership. You are willing to spend up to $20,000 for a
new 4x4. The seller is willing to sell this truck for no less
than $15,000. After some negotiation you buy the truck
for $18,000.
Analysis:
Buyer’ Maximum- $20,000
Sellers Minimum- $15,000
Price- $18,000
Consumer’s Surplus-$2,000
Producer’s Surplus- $3,000
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Voluntary Exchange Terms
Consumer Surplus is the difference between
what you are willing to pay and what you
actually pay.
CS = Buyer’s Maximum – Price
Producer’s Surplus is the difference between
the price the seller received and how much
they were willing to sell it for.
PS = Price – Seller’s Minimum
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