SUPPLY AND DEMAND REVISITED. COPY 1.00 100 P Q 1.50.50 60155 S1 D1

SUPPLY AND DEMAND REVISITED

COPY

1.00

100

P

Q

1.50

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60 155

S1

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• 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

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1.50

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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


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


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

D2


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

D2


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

D2


surplus? Draw it.

100

P

Q

1.50

.50

60 200

S1

D1

145

2.00

75 120 220

d2

500


surplus? Draw it.

100

P

Q

1.50

.50

60 200

S1

D1

145

2.00

75 120 220

d2

500


surplus? Draw it.

100

P

Q

1.50

.50

60 200

S1

D1

145

2.00

75 120 220

d2

500


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

s2


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

s2


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

s2


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

s2


surplus? Draw it.P

Q

1.50

.50

60 200

S1

D1

145180

2.00

75 120 220

s2


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

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Q

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D1

S2

They will have a shortage

ONE MORE

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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?

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100

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Q

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60 155

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PF

Effective

Surplus

Effective or not?

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100

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Q

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60 155

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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

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MY ARROW GOING TOWARDS THE FLOOR!!!!

pf

Effective

Surplus

Effective or not

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MY ARROW HITS THE CEILING

PC

Effective

Shortage

Effective PC or not

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NOTICE I HIT EQUILIBRIUM BEFORE I GET TO THE CEILING SO not effective

pc

Effective or not

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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

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60 155

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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

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.50

60 155

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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

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60 155

D1

CURVE IS FLAT

THINK OF ELASTIC LIKE A RUBBER BAND IT STRETCHES OUT

INELASTIC

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INELASTIC IS ALMOST STRAIGHT DOWN

PERFECTLY ELASTIC

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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

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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

Documents

SUPPLY AND DEMAND REVISITED. COPY 1.00 100 P Q 1.50.50 60155 S1 D1