Transcript Demand - NSocialStudies

Chapter 6: Equilibrium
(Combining Demand and Supply)
Review:
Demand vs. Supply
Demand vs. Supply
• Consumers are willing and
able to purchase
• Businesses are willing and
able to sell
• Price and Quantity have an
INVERSE relationship
• Price and Quantity have a
DIRECT relationship
• Negative Slope
• Positive Slope
• Curves Down and to Right
• Curves Up and to Right
Movements:
Demand vs. Supply
• Cause:
Price (Ceteris Paribus)
• Cause:
Price (Ceteris Paribus)
• Called: Change in
Quantity Demanded
• Called: Change in
Quantity Supplied
Shifts:
Demand vs. Supply
• Cause:
Quantity (PYNTE)
• Cause:
Quantity (SPENT)
• Called:
Change in Demand
• Called:
Change in Supply
Is this Demand or Supply?
1. PYNTE variables
• Demand
4. Ceteris Paribus causes
a movement
• Demand and SUPPLY
2.
5.
• SUPPLY
• SUPPLY
3.
6. SPENT variables
• Demand
• SUPPLY
Demand
•
Starting at point X
1.
Increase in Quantity Demanded
Z
2.
Decrease in Quantity Demanded
S
3.
Increase in Demand
Y
4.
Decrease in Demand
Y
Supply
•
Starting at point X
1.
Increase in Quantity Supplied
Y
2.
Decrease in Quantity Supplied
Z
3.
Increase in Supply
S
4.
Decrease in Supply
Q
How much are you going to pay
for that doggie in the window?
Answer: The market price.
Doggie Example
“The price will settle at the point where the number of
dogs for sale exactly matches the number of dogs that
consumers want to buy. If there are more potential pet
owners than dogs available, then the price of dogs will
go up. Some consumers will then decide to buy ferrets
instead and some pet shops will offer more dogs for
sale. Eventually, the supply of dogs will match the
demand. Remarkably, some markets actually work
this way.
--Naked Economics, p. 15
Equilibrium
 The point at which
Demand and Supply
are EQUAL at the
SAME Price and
Quantity
 Example: Point F
What is Equilibrium?
Price
Quantity
Demanded
Quantity
Supplied
$1
5
1
$2
4
2
$3
3
3
$4
2
4
$5
1
5
Equilibrium
Price
Quantity
Demanded
Quantity
Supplied
$1
5
1
$2
4
2
$3
3
3
$4
2
4
$5
1
5
Equilibrium
Price
Quantity
Demanded
Quantity
Supplied
$1
5
1
$2
4
2
$3
3
3
$4
2
4
$5
1
5
What is the difference between…
Equilibrium Price
The Price at which Quantity
Demanded and Quantity Supplied
are EQUAL
Example: $3
Equilibrium Quantity
The Quantity at which Quantity
Demanded and Quantity Supplied
are EQUAL
Example: 3
Equilibrium Price
Example: $2
Equilibrium Quantity
Example: 20
Disequilibrium
 Any Price or Quantity
NOT at equilibrium
 Demand and Supply
are NOT equal in the
Market
 Example:
Points Y and X
7. Identify
a) Equilibrium price has
[increased / decreased]
b) Equilibrium quantity has
[increased / decreased]
7. Identify
a) Equilibrium price has
[increased / decreased]
b) Equilibrium quantity has
[increased / decreased]
Outcomes of Disequilibrium…
Excess Demand
Excess Supply
Excess Demand
 Quantity Demanded is
MORE than Quantity
Supplied
 AKA: Shortage
Excess Demand (Shortage)
Scenario:
Betty wants 10 Candy Bars. The problem is
that there is only 6 on the shelves
1
2
3
4
5
6
1
2
3
4
5
6
7
8
9
The Green represents TOO much DEMAND
The Purple Represents NOT enough Supply
10
Excess Demand (Shortage)
Real-Life Examples:
•
•
•
•
•
Turkeys before Thanksgiving
Elmo dolls before Christmas
Eggs before Easter
Flu shots during flu season
California’s electricity shortage
Excess Demand
(Shortage)
• What do you think
will eventually happen
to PRICE when there
is a shortage?
Excess Demand
(Shortage)
• What do you think
will eventually happen
to PRICE when there
is a shortage?
• It will INCREASE
Excess Supply
 Quantity Demanded is
LESS than Quantity
Supplied
 AKA: Surplus
Excess Supply (Surplus)
Scenario:
Betty went to the mall for 2 t-shirts. The
store had 8 t-shirts.
1
1
2
2
3
4
5
6
7
8
The Green represents NOT enough Demand
The Purple Represents TOO much Supply
Excess Supply (Surplus)
Real-Life Examples:
• Christmas decorations after the Christmas
• Crops are in season—like apples in the fall
or watermelon in the summer
• Companies thought a product would sell—
but no one wants it
Excess Supply (Surplus)
• What do you think
will eventually happen
to PRICE when there
is a surplus?
Excess Supply (Surplus)
• What do you think
will eventually happen
to PRICE when there
is a surplus?
• It will DECREASE
Why would a
deer cost
$43,000?
Why would a deer cost
$43,000?
There are local farms that
breed deer for the purpose of
selling them— “deer farms”
These deer farms grow deer
for the sole purpose of
selling them—mostly to
people in Western states.
Why would a deer cost
$43,000?
The buyers purchase deer to:
• Increase the amount of deer
in Western woods (where
hunters pay a certain amount
of money each year to hunt
in a particular area)
• For genetics—to reproduce
and create “more superior”
deer
Why would a deer cost
$43,000?
• When there is NOT a lot of
genetically superior deer, the
supply for deer decreases.
• Because many people want
the deer, the number of
demanders increases.
• As a result, the price of deer
increases—to $43,000!!!
Why would a deer cost
$43,000?
Answer: Excess Demand (shortage)
Outcomes of Price Control…
Price Ceiling
Price Floor
Price Ceiling
 The MAXIMUM Price that
can be legally charged for a
good or service
 Example: Rent Control
 Advantages: Keeps prices
lower & affordable
 Disadvantages: Reduces
Quantity and Quality
Price Floor
The MINIMUM Price that can
be legally charged for a good or
service
Example: Minimum wage
Advantage:Creates a standard
Disadvantage:More unemployed
because costs increase
Black Market
Items sold illegally
Examples: Babies, guns, drugs
Efficient Resource Allocation
Distribute goods and services adequately
Role of Prices
Prices
Advantages
1. Measure of value
2. Signal of how and what
to produce
3. Flexibility
4. Costs nothing to
administer
5. Wide choice of goods
6. Efficiency
Disadvantages
1. People use the black
market
2. Can cause shortages or
surpluses
3. Can cause externalities
(unintended economic
side effects)
4. Consumers make illadvised decisions
Which ones do they have in common?
Causes in Change in Demand
P: Price of Related Goods
Y: Income
N: Number of Demanders
T: Taste
E: Expectations
Causes in Change in Supply
S: Supplier Input Costs
P: Price of Related Good
E: Expectations
N: Number of Suppliers
T: Technology,
Taxes,
Tampering,
Temperature
Also…
The “N” variables are
different—
The “T” variables are
different—
Demand:
N: Number of Demanders
Demand:
T: Taste
Supply:
N: Number of Suppliers
Supply:
T: There are 4 of them…
none of which are
TASTE!!!
Bails of Hay
The price of hay is expected to increase.
(From $4 a bail now to $ 10 a bail in the future)
Is there a PYNTE variable?
Is there a SPENT variable?
Bails of Hay
The price of hay is expected to increase.
(From $4 a bail now to $ 10 a bail in the future)
Is there a PYNTE variable? YES
Is there a SPENT variable? YES

What is the variable?
Bails of Hay
The price of hay is expected to increase.
(From $4 a bail now to $ 10 a bail in the future)
What is the Variable?
Expectations


What happens to the demand
of bails of hay?
What happens to the supply
of bails of hay?
Bails of Hay
The price of hay is expected to increase.
(From $4 a bail now to $ 10 a bail in the future)
Expectations
The demand for bails of hay INCREASES
The supply for bails of hay DECREASES

Which direction does the demand
curve and supply curve shift?
Demand
Now
Demand
Later
Supply
Now
P I
Q I
Q D
Supply
Later
P
Q D
I
Q I
Bails of Hay
The price of hay is expected to increase.
(From $4 a bail now to $ 10 a bail in the future)
Expectations
The demand for bails of hay INCREASES
The supply for bails of hay DECREASES
The demand curve shifts to the RIGHT
The supply curve shifts to the LEFT

What happens to the equilibrium price
of the bail of hay?
Bails of Hay
The price of hay is expected to increase.
(From $4 a bail now to $ 10 a bail in the future)
Expectations
The demand for bails of hay INCREASES
The supply for bails of hay DECREASES
The demand curve shifts to the RIGHT
The supply curve shifts to the LEFT
The equilibrium price of the bail of hay
will INCREASE.
Wooden Desks
The price of wood increases.
Is there a PYNTE variable?
Is there a SPENT variable?
Wooden Desks
The price of wood increases.
Is there a PYNTE variable? NO
Is there a SPENT variable? YES

What is the SPENT variable?
Wooden Desks
The price of wood increases.
What is the SPENT variable it?
S (supplier input costs)

What happens to the supply of
wooden desks?
Wooden Desks
The price of wood increases.
S (supplier input costs)
What happens to the supply of wooden
desks? DECREASES

Which direction does the supply
curve shift?
Wooden Desks
The price of wood increases.
S (supplier input costs)
Supply of wooden desks DECREASES
The supply curve shifts to the LEFT

What happens to the equilibrium
price and equilibrium quantity of
the desks?
Wooden Desks
The price of wood increases.
S (supplier input costs)
Supply of wooden desks DECREASES
The supply curve shifts to the LEFT
The Equilibrium price (INCREASES)
Equilibrium quantity (DECREASES)
Equilibrium Song
• “Help! Help! Here
come the Bears”
--Hair Bear Bunch
Equilibrium Song
• Figure out Demand,
put it on the graph…
bum, bum, bum
• Figure out Supply, put
it on the graph…
bum, bum, bum
Standards
•
•
•
•
6.2.12EF
6.3.12DEF
6.4.12DE
6.5.12ABDF