Economics Supply and Demand

Supply _____ Supply _____ Demand _____ Demand _____ Quantity _____ Quantity _____ Price _____ Price _____

Demand
Definition:

Supply
Definition:

Non-Price Factors that Change Demand 1. Substitutional Effect

Non-Price Factors that Change Supply 1. Government Policies

2. Complimentary Good

2. Cost of Production

3. Income Effect

3. Change in Technology

4. Change in the Number of Consumers

4. Natural Disasters

5. Change in Consumer Expectations

5. Other (Strikes, Imports)

6. Change in Consumer Tastes Types of Demand 1. Example: 2. Example:

Law of Diminishing Returns -

Law of Diminishing Marginal Utility -

Supply and Demand Practice

1. Create a demand curve based on the following schedule for 2 liter Pepsi-Cola: Price (P) $.90 $1.00 $1.10 $1.20 $1.30 Demand (D) 6 5 4 3 3

2. Demonstrate the effect on the demand curve if the price of Coca-Cola rises. 3. Demonstrate the effect on demand if the news report describes the negative health risks when too many soft drinks are consumed. 4. Identify the non-price factors that changed demand in #2 and #3. 5. Create a supply curve based on the following schedule for 2 liter Pepsi-Cola: Price (P) $.90 $1.00 $1.10 $1.20 $1.30 Supply (S) 2 3 4 5 6

6. Demonstrate the effect on the supply curve if Pepsi-Cola employees go on strike. 7. Demonstrate the effect on the supply curve if the price of sugar rises. 8. Identify the non-price factors that changed supply in #6 and #7. 9. Combine the original demand and supply curves onto one graph. 10. What is the market price? 11. Add the curves from #2 and #6 to the same graph use in #9. 12. What is the new market price? 13. What economic condition exists above the market price? 14. What economic condition exists below the market price? 15. How do businesses deal with each of those conditions?

Reasons For Changes in Demand

A B C D E

Price (P)

Beef consumption in May

Read the following eight newspaper headlines. In each case decide if the event will cause a change in the demand for beef. If so, determine if it is an increase or a decrease, and write the correct answer. Begin at curve C. If you think headline 1 means there will be a decrease in demand, write decrease in the first blank and B in the second blank: move to curve B to do headline 2. If you think demand will increase, write increase and D in the blanks for headline 1; move to curve D to do headline 2. Move only one curve at a time. Do not skip from say A to C even if you think the headline means there will be a large change in demand. Do not go beyond the five curves. If you are at A and the next headline implies a decrease in demand, you goofed somewhere. There is one headline which implies that the demand for beef does not change.

5. MIGRATORY BIRDS HEAD NORTH, SUMMER AWAITS Demand _______________ Curve ________

6. REAL INCOME FOR AMERICANS DROPS 3RD

MONTH IN ROW Demand _______________ Curve ________

7. CHARCOAL SHORTAGE THREATENS MEMORIAL DAY COOKOUTS Demand _______________ Curve ________ 8. NATIONWIDE FAD: THE DISCO-BURGER Demand _______________ Curve ________ Optional Bonus: Categorize each change in demand in the exercise above according to the reason that demand changed. Write the number of the headline(s) next to the reason for the change in demand. One category will have two headlines numbers. _____ A change in consumer expectations.

1. PRICE OF BEEF TO RISE IN JUNE Demand _______________ Curve ________

2. MILLIONS OF ALIENS SWELL U.S. POPULATION Demand _______________ Curve ________

_____ A change in consumer tastes. _____ A change in number of consumers in the market. _____ A change in income.

3. PORK PRICES DROP Demand _______________

Curve ________

_____ A change in price of a substitute good. _____ A change in the price of a complementary good.

4. SURGEON GENERAL WARNS THAT EATING BEEF CAN BE HAZARDOUS TO HEALTH Demand _______________ Curve ________

Reasons For Change in Supply

A B C D E

Price (P)

Supply of foreign and domestically produced cars in the U. S. (Q) Read the following seven newspaper headlines. In each case, decide if the event will cause any change in the supply of cars. If so, determine if it is an increase or decrease, and write the correct answer. Begin at curve C. If you think headline 1 means there will be a decrease in supply, write decrease in the first blank and B in the second blank; move to curve B to do headline 2. If you think supply will increase, write increase and D in the blanks for headline 2; move to curve D to do headline 3. Move only one curve at a time. Do not skip from say A to C even if you think the headline means there will be a large change in supply. Do not go beyond the five curves. If you are at A and the next headline implies a decrease in supply, you goofed somewhere. There is one headline which implies that the supply of cars does not change. 4. NEW AUTO IMPORT QUOTAS REDUCE FLOW OF FOREIGN CARS Supply _______________ Curve ________ 5. COST OF STEEL RISES Supply _______________

Curve ________

6. AUTO PRODUCER GOES BANKRUPT, CLOSES OPERATION Supply _______________ Curve ________ 7. BUYERS REJECT NEW MODELS Supply _______________ Curve ________

1. AUTO WORKERS UNION AGREES TO WAGE AND FRINGE CUTS Supply _______________ Curve ________ 2. NEW ROBOT TECHNOLOGY INCREASES EFFIEIENCY Supply _______________ Curve ________ 3. NATIONWIDE AUTO STRIKE BEGAN AT MIDNIGHT Supply _______________ Curve ________

Optional Bonus: Categorize each change in supply according to the reason that affected supply. Write the number of the headline next to the reason for the change in supply. In some cases, more than one headline could be matched to a reason.
_____ A change in the cost of production. _____ A change in technology. _____ Natural disaster/other event that causes decrease in production. _____ Government policies.