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SUPPLY AND DEMAND REVISITED
COPY
1.00
100
P
Q
1.50
.50
60 155
S1
D1
• The important part of the next slides is to make sure you can read the graphs correctly. Don’t worry about the triangles. I put them into show you what happens but you won’t have to do that. Just make sure you can look at the graphs and know how many are wanted and made and if it will create a shortage or a surplus or be at equillibrium.
PRACTICE
1.00
100
P
Q
1.50
.50
60 155
S1
D1
A B
D C
FGH
I
If price is 2.00 how many are made and wanted. Is there a shortage or
surplus? Draw it.
100
P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
If price is 1.50 how many are made and wanted. Is there a shortage or
surplus? Draw it.
100
P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
If price is .50 how many are made and wanted. Is there a shortage or
surplus? Draw it.
100
P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
If price is 1.50 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
D2
If price is .50 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
D2
If price is 2.00 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
D2
If price is 2.00 how many are made and wanted. Is there a shortage or
surplus? Draw it.
100
P
Q
1.50
.50
60 200
S1
D1
145
2.00
75 120 220
d2
500
If price is 1.50 how many are made and wanted. Is there a shortage or
surplus? Draw it.
100
P
Q
1.50
.50
60 200
S1
D1
145
2.00
75 120 220
d2
500
If price is .50 how many are made and wanted. Is there a shortage or
surplus? Draw it.
100
P
Q
1.50
.50
60 200
S1
D1
145
2.00
75 120 220
d2
500
If price is 2.00 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
s2
If price is 1.50 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
s2
If price is .50 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
s2
If price is 2.00 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
s2
If price is 1.50 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
s2
If price is .50 how many are made and wanted. Is there a shortage or
surplus? Draw it.P
Q
1.50
.50
60 200
S1
D1
145180
2.00
75 120 220
s2
How many are wanted and made at 1.50?
1.00
100
P
Q
1.50
.50
60 155
S1
D1
S2
D2
200 225
How many are wanted and made at .50?
1.00
100
P
Q
1.50
.50
60 155
S1
D1
S2
D2
200 225
How many are wanted and made at 1.00?
1.00
100
P
Q
1.50
.50
60 155
S1
D1
S2
D2
200 225
Coke cures cancer its price was 1.00. But they price it at 2.00 how many are made and wanted. Is there a shortage
or surplus? Draw it.
1.00
100
P
Q
1.50
.50
60 200
S1
D1D2
145180
2.00
75 120 220
At 2.00 there are 100 wanted and there are 200 made. Surplus
If price is 1.50 how many are made and wanted. Is there a shortage or surplus? Draw it.
1.00
100
P
Q
1.50
.50
60 200
S1
D1D2
145180
2.00
75 120 220
At equillibrium- want and make 145 at 1.50 This is where the price should be at.
What if coke keeps its price at 1.00 how many are made and wanted. Is there a shortage or surplus? Draw it.
1.00
100
P
Q
1.50
.50
60 200
S1
D1D2
145180
2.00
75 120 220
At 1.00 there are 120 made and 200 wanted. There is a shortage
Even if it cures cancer what would happen if coke decides to drop its price to .50 how many are made and wanted. Is
there a shortage or surplus? Draw it.
1.00
100
P
Q
1.50
.50
60 200
S1
D1D2
145180
2.00
75 120 220
At 50. 75 are made and 220 are wanted. Shortage
Coke hires lazy workers what happens if they keep the price the same?
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100
P
Q
1.50
.50
60 155
S1
D1
S2
They will have a shortage
ONE MORE
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100
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S1
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S2
AB
C
Packet Problems
• LOD-21B,33B,25C
• SD-12A,2B,48B,20A,5B,41C
• INFERIOR NORMAL GOODS-18A,21A,4B,4C,2C,40C
• SD BOTH MOVE4A,32A,3B,28C
• 7E-2(CG),
• 10E-1 A-C (NEW TECHNOLOGY PEACH INDUSTRY),
21b
33b
25c
12a
2b
48b
20a
5b
40c
41c
4a
32a
3b
28c
10eA-I
Aii
Q-up
Price-down
s1s2
S
B- i-down
ii-UPep1
ep1
ep2
ep2
eq1
eq1
eq2
eq2
S
10e-C
Ci-down
Cii-Down
wageDi-Down
Dii-Down
ep1
ep1
eq2
eq2 eq1
eq1
ep2
ep2
D
D
7e-2
A
Cream
ep1
eq1
ep2
eq2
D
Workers
ep1
eq2 eq1
ep2
NEW STUFF OH NO!!!
• PRICE FLOORS-EXAMPLE-MINIMUM WAGE!!!!! MEANS THE PRICE CAN’T GO BELOW THE FLOOR.
2.00
10
5.15
205
PRICE FLOORS WILL BE SURPLUSES
1.00IF THE PRICE FLOOR IS BELOW EQUILIBRIUM NO EFFECT
Effective or not?
1.00
100
P
Q
1.50
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60 155
S1
D1
PF
Effective
Surplus
Effective or not?
1.00
100
P
Q
1.50
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60 155
S1
D1
PF
Ineffective
At equillibrium so no shortage or surplus
PRICE CEILINGS
• EXAMPLE-RENT CONTROLED APARTMENT
1500
100
500
SHORTAGE WILL OCCUR
IF CEILING IS ABOVE EQUILIBRIUM THERE WILL BE NO EFFECT
2000
HELPFUL HINT PRETEND TO DRAW AN ARROW TOWARDS YOUR CEILIING OR FLOOR IF YOU HIT THE LINE BEFORE YOU GET TO EQUILIBRIUM YOU HAVE AN EFFECTIVE
CEILING OR FLOOR.
Effective or not
1.00
100
P
Q
1.50
.50
60 155
D1
MY ARROW GOING TOWARDS THE FLOOR!!!!
pf
Effective
Surplus
Effective or not
1.00
100
P
Q
1.50
.50
60 155
S1
D1
MY ARROW HITS THE CEILING
PC
Effective
Shortage
Effective PC or not
1.00
100
P
Q
1.50
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60 155
S1
D1
NOTICE I HIT EQUILIBRIUM BEFORE I GET TO THE CEILING SO not effective
pc
Effective or not
1.00
100
P
Q
1.50
.50
60 155
S1
D1
NOTICE I HIT EQUILIBRIUM BEFORE I GET TO THE FLOOR SO NO EFFECT
pf
Effective or not
100
100
150
75
GOVERNMENT PUTS A PRICE FLOOR AT 150 FOR THIS PRODUCT.
PRICE CEILING OF .50
1.00
100
P
Q
1.50
.50
60 155
S1
D1
EffectiveShortage
PRICE FLOOR OF 1.50
1.00
100
P
Q
1.50
.50
60 155
S1
D1
Effectvie
Surplus
PRICE CEILING OF 1.50
1.00
100
P
Q
1.50
.50
60 155
S1
D1
Ineffective
PRICE FLOOR OF .50
1.00
100
P
Q
1.50
.50
60 155
S1
D1
ineffective
PRACTICE PRICE CEILINGS AND FLOORS
• DO 3A, 50A, 19B AND 3 C IN PACKETS
•13E-2(CIRCUS TICKETS, PC) PRICE FLOOR AN CEILING-3A,50A,19B,3C P36
NORMAL AND INFERIOR GOODS
• NORMAL GOODS-NORMAL
• INFERIOR GOODS-ARE GOODS THAT YOU BUY IF YOU ARE BROKE!!!(BUS PASSES)(SPAM)(COOKO ROOS)
PRACTICE NORMAL AND INFERIOR GOODS
• PRACTICE- DP 21A, 4B,4C,40C
ELASTICITY(MEASURES PRICE SENSITIVITY)
• INELASTIC GOODS-GOODS THAT ARE NEEDED(GAS)
• ELASTIC-WANTED(YOU DON’T NEED THEM)(LIKE CANDY)
ELASTICITY DEFINITIONS
• ELASTIC GOODS ARE HUGELY AFFECTED BY PRICE CHANGES
• INELASTIC GOOD A PRICE CHANGE WILL NOT HAVE THAT BIG OF AN EFFECT.
FACTORS THAT CAN DETERMINE IF IT IS ELASTIC OR
INELASTIC
• PERCENTAGE OF INCOME-BIG-ELASTIC
• TIME FACTOR-SHORT INELASTIC
• ARE THERE SG- IF YES-ELASTIC
ELASTIC CURVE
1.00
100
P
Q
1.50
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60 155
D1
CURVE IS FLAT
THINK OF ELASTIC LIKE A RUBBER BAND IT STRETCHES OUT
INELASTIC
1.00
100
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D1
INELASTIC IS ALMOST STRAIGHT DOWN
PERFECTLY ELASTIC
1.00
100
P
Q
1.50
.50
60 155
BUYERS WILL BUY ALL THEY CAN AT 1.OO IF PRICE GOES UP EVEN A PENNY THEY WILL BUY NONE OF THE PRODUCT
ANOTHER HINT IS PERFECTLY ELASTIC LOOKS LIKE A E
D1
PERFECTLY INELASTIC CURE FOR CANCER/ONE OF A
KIND VASE DEMAND
1
ONE CURE AVAILABLE
AN EXAMPLE OF PERFECTLY ELASTIC SUPPLY
60,000 SEATS AT FOOTBALL STADIUM
CAN’T MAKE ANYMORE SEATS
P
Q60K
D1
D2
50
100
D3
25
ELASTICITY FOR DEMANDELASTIC-SLOPE GREATER THAN 1
INELASTIC-SLOPE =LESS THAN 1
UNIT ELASTIC=SLOPE =1
A
B
C
TR FORMULA AKA THUMB FORMULA
• TR FORMULA LOOKS AT THE PRICE CHANGE AND HOW IT EFFECTS TOTAL REVENUE.
• TOTAL REVENUE IS ALL THE MONEY COMING IN FROM SELLING SOMETHING.
• TO FIND TOTAL REVENUE YOU MULTIPLY THE PRICE OF THE GOOD TIMES THE QUANTITY YOU SOLD.
• TR=TOTAL REVENUE• TR=PQ• OR PRICE TIMES QUANTITY
AN EXAMPLE OF TR FORMULA
• P1 10• Q110 TR1=100
• P2 5• Q2 11 TR2=55• P WENT DOWN• TR WENT DOWN• = INELASTIC• PEOPLE MUST NOT CARE ABOUT THE PRICE
CHANGE. IT WENT DOWN BUT DID NOT ATTRACT ENOUGH PEOPLE TO MAKE TR GO UP!!
ANOTHER EXAMPLE
• P1=10 TR1=100• Q1=10
• P2 12 TR2=12• Q2-1
• TR=DOWN• P=UP = ELASTIC• IN OTHER WORDS THIS BUSINESS RAISED ITS
PRICE AND IT LOST ENOUGH CUSTOMERS TO LOSE MONEY. PEOPLE MUST BE WATCHING THE PRICE OF THIS PRODUCT.
INELASTIC
• P1-10 TR1=200
• Q1-20
• P2-5 TR2=150
• Q2-30
• CHANGE Q*P1+P2 10(15) 150
• CHANGE IN P(Q1+Q2) 5(50) 250
PRACTICE ON YOUR OWN
• P1-20 TR1=400
• Q1-20
• P2-10
• Q2-22 TR2=220
MORE PRACTICE
• P1-10
• Q1-20 TR1=200
• P2-5
• Q2-100 TR2=500
MIDPOINT FORMULA
Q
P
(P1 +P2)
(Q1+Q2)X>1 IT IS ELASTIC
X=1 IT IS UNIT ELASTIC
X< IT IS INELASTIC
USE MIDPOINT FORMULA
• P1 10
• Q1 20
• P2 5
• Q2 100
• 80(15)=1200 =2=elastic
• 5(120)=600
ONE MORE OF MIDPOINT PLEASE
• P1-90
• Q1-10
• P2-80
• Q2-20
• 17/3=elastic
•
DO PACKET
• 34A, 20B, 47B,
• 4e-2
SUMMATION OF ELASTICITY
• IF SOMETHING IS ELASTIC
CONSUMERS ARE VERY CONCERNED ABOUT THE PRICE
INELASTIC
• IF SOMETHING IS INELASTIC CONSUMERS ARE NOT WATCHING THE PRICES THAT CLOSELY
SO ELASTICITY AND TR
• (GAS)IF A PRODUCT IS INELASTIC AND A BUSINESS RAISES ITS PRICE THEY WILL MAKE _________MONEY?(MORE OR LESS)
• (CARS)IF A PRODUCT IS ELASTIC AND A BUSINESS RAISES ITS PRICE THEY WILL MAKE____________MONEY?(MORE OR LESS)
ANOTHER WAY OF SAYING IT
• ELASTIC GOODS
•PRICE GOES UP A LITTLE Q = WILL GO DOWN A LOT
• CAUSING THE TR TO GO DOWN!!!
ANOTHER WAY OF SAYING IT
• INELASTIC
• A RAISE IN PRICE=Q WILL GO DOWN A LITTLE
•CAUSING TR TO GO UP ALSO
YET ONE MORE WAY
• ELASTIC
• %OF P CHANGE IS<% OF Q CHANGE
• OR• %P< %Q• A 5% CHANGE IN P WILL RESULT IN A
LARGER % CHANGE IN Q• AN EXAMPLE PRICE GOES UP 5% AND Q
GOES DOWN 10%
YET ONE MORE WAY
• INELASTIC
• %OF P CHANGE IS>% OF Q CHANGE
• OR• %P> %Q• A 5% CHANGE IN P WILL RESULT IN A
SMALLER % CHANGE IN Q• AN EXAMPLE- PRICE GOES UP 5% AND Q
GOES DOWN ONLY 3%
SURPLUSES(NIKE SHOES)
CS
PS
P
Q
100
50
1
CONSUMER
PRODUCER
0
ANOTHER EX
1.00
100
P
Q
1.50
.50
60 155
D1
2.00
A
B
C
ANOTHER EXAMPLE
1.00
100
P
Q
1.50
.50
60 155
S1
D1
A
B
C
PRACTICE CS/PS
• DO 5A, 18B
120 game FOR REVIEW
• 3a
• 12a
• 31a,•
• 50a•
• 4b,
• 19b
• 21b,
• 31b
• 33b
• 2c
120 GAME DAY 2
• 38C
• 46A
• 20A
• 32A
• 1A
• 1B
• 16B
• 3B
• 5B
• 48B
• 28C
• 1C
• 39C
• 13C
• 38C
• 40C
PUTTING IT ALL TOGETHER (DAY SAYS GAME)
• INCLUDING
• S/D SHIFTS TOGETHER
• LOD
• S/D
• INFERIOR/NORMAL GOODS
• ELASTICITY
• PRICE/FLOOR/CEILINGS
LEARNING SUPPLY AND DEMAND ESSAYS!
• TARIFFS
• TAXES
• ELASTICITIES
• EXPORT IMPORTS
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