2. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
ASSUMPTIONS:
1. The Demand and Supply Curves
Are rigid (they keep the same
Shape/slope)
2. The market equilibrium price is $1.00 and
the equilibrium quantity (Qd=Qs) is 100
units.
Qd=Qs
3. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
NOW: Something in this
Market causes SUPPLY to
INCREASE by 50%.
1. Resource prices DECREASE
2. Taxes DECREASE
3. Subsidies INCREASE
4. INCREASE in Technology
5. Positive Extraneous variable
6. Producer Expectations
4. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
This means that at EVERY GIVEN
PRICE the Quantity SUPPLIED is
Going to be 50% more.
5. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
This means that at EVERY GIVEN
PRICE relative to Demand* the
Quantity Demanded is going to be
50% more.
$2.00
$.50
50 75 225
+50%
+50%
+50%
Demand 1Demand*
Supply 1
6. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
Now we have a NEW Supply Curve
Supply 1
The Supply Curve has
shifted to the RIGHT
7. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
Let’s assume for the moment
that the PRICE does NOT
change in reaction to this
INCREASE in DEMAND
8. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
At a price of $1.00 the Quantity Supplied is
going to be 150 BUT at a price of $1.00 there
is still going to be a Quantity Demanded of
100.
OUR MARKET IS IN DIS-EQUILIBRIUM!!
9. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
10. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
At a price of $1.00 the Quantity Supplied is
going to be 150 BUT at a price of $1.00 there
is still going to be a Quantity Demanded of
100.
OUR MARKET IS IN DIS-EQUILIBRIUM!!
Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
QsQd
11. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
At this Price and Quantity Demanded
There is no market---The Market Demanders are
NOT going to Demand that Quantity at that
price. Quantity Supplied is GREATER than
Quantity Demanded
12. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
We have a SURPLUS in the Market!
SurplusSurplus
13. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
SurplusSurplus
This is where it is crucial to understand
the difference between a CHANGE in
DEMAND or Supply vs a CHANGE in
Quantity Demanded or Quantity
Supplied
14. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
SurplusSurplus
With our change in SUPPLY finished
we now turn the focus to
MOVEMENTS along our new Supply
CURVE Relative to MOVEMENTS
along our Demand CURVE…PRICE is
going to dictate our changes in
Quantity Demanded AND changes in
Quantity Supplied
15. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
SurplusSurplus
Because there is a SURPLUS in this
market, the pressure on the price of
the good is going to be
DOWNWARD. Let’s assume the
Price DECREASES to $.85
16. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
At $.85 the Quantity Demanded
(dictated by DEMAND 1) is 125 AND
the Quantity Supplied (Dictated by
Supply*) is135.$.85
135125
17. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
$.85
135125
We are STILL not in Market
Equilibrium…Quantity Demanded
(60 ) is LESS than Quantity Supplied
(85)…A SURPLUS STILL exists in this
market. The gap has closed some,
but we are not in Market
Equilibrium yet where Qd=Qs.Surplus
18. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
$.85
135125
The pressure on the price is going to
continue...Can you see where we
are heading???? The SURPLUS will
only be cleared when we reach the
intersection of Demand and
Supply!!
19. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
$.85
135125
As the price decreases Demanders
are increasing their Quantity
Demanded because as the price
Decreases the quantity demanded
Increases (Law of Demand).
20. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
$.85
135125
Current suppliers (producers) are
DECREASING production (Quantity
Supplied) in response to the LOWER
price they are receiving (The Law of
Supply)
21. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1Demand*
Supply 1
$.85
135125
At a Price of $.75 (roughly) Qd = Qs at
130 Units.
The market is back in Equilibrium.
$.75
130
22. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
S*
Pe
D*
S 1
P1
Qe Q1
This is a correctly labeled Supply and
Demand graph showing an INCREASE in
Supply…Notice I have replaced the numerical
price and quantity with alphabetical
designations and abbreviated the Demand
and Supply Curves. This is the way I would
like you to draw and label your supply and
demand graphs from now on.
24. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
ASSUMPTIONS:
1. The Demand and Supply Curves
Are rigid (they keep the same
Shape/slope)
2. The market equilibrium price is $1.00 and
the equilibrium quantity (Qd=Qs) is 100
units.
Qd=Qs
50 15075 125 22525
25. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
NOW: Something in this
Market causes SUPPLY to
DECREASE by 50%.
1. Resource prices INCREASE
2. Taxes INCREASE
3. Subsidies DECREASE
4. DECREASE in Technology
5. Negative Extraneous variable
6. Producer Expectations
26. Supply and Demand
Supply INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
This means that at EVERY GIVEN
PRICE relative to Supply* the
Quantity Supplied is going to be
50% LESS.
27. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
This means that at EVERY GIVEN
PRICE relative to Supply* the
Quantity Supplied is going to be
50% LESS.
-50%
-50%
-50%
28. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
-50%
-50%
-50%
Now we have a NEW Supply Curve
Supply 1
The Supply Curve has
shifted to the LEFT
Supply 1
29. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Let’s assume for the moment
that the PRICE does NOT
change in reaction to this
DECREASE in SUPPLY
30. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
At a price of $1.00 the Quantity
Supplied is going to be 50 BUT at a price
of $1.00 there is still going to be a
Quantity Demanded of 100.
OUR MARKET IS IN DIS-EQUILIBRIUM!!
31. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
At a price of $1.00 the Quantity Supplied is
going to be 50 BUT at a price of $1.00 there is
still going to be a Quantity Demanded of 100.
OUR MARKET IS IN DIS-EQUILIBRIUM!!
Qs Qd
32. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
At this Price and Quantity Supplied
There is no market---The Market Suppliers are
NOT going to Supply that Quantity at that price.
Quantity Demanded is GREATER than Quantity
Supplied
33. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
We have a SHORTAGE in the Market!
ShortageShortage
34. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
ShortageShortage
This is where it is crucial to understand
the difference between a CHANGE in
DEMAND or Supply vs a CHANGE in
Quantity Demanded or Quantity
Supplied
35. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
ShortageShortage
With our change in SUPPLY finished
we now turn the focus to
MOVEMENTS along our new Supply
CURVE Relative to MOVEMENTS
along our Demand CURVE…PRICE is
going to dictate our changes in
Quantity Demanded AND changes in
Quantity Supplied
36. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
Because there is a SHORTAGE in this
market, the pressure on the price of
the good is going to be UPWARD.
Let’s assume the Price INCREASES
to $1.20
37. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
$1.30
60 85
At $1.30 the Quantity Demanded
(dictated by DEMAND 1) is 60 AND
the Quantity Supplied (Dictated by
Supply*) in 85.
38. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
$1.30
60 85
ShortageShortage
We are STILL not in Market
Equilibrium…Quantity Demanded
(60 ) is LESS than Quantity Supplied
(85)…A SURPLUS STILL exists in this
market. The gap has closed some,
but we are not in Market
Equilibrium yet where Qd=Qs.
39. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
$1.30
60 85
The pressure on the price is going to
continue...Can you see where we
are heading???? The SHORTAGE
will only be cleared when we reach
the intersection of Demand and
Supply!!
40. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
$1.30
60 85
As the price increases Demanders
are decreasing their Quantity
Demanded because as the price
Increases the quantity demanded
Decreases (Law of Demand).
41. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
$1.30
60 85
Current suppliers (producers) are
INCREASING production (Quantity
Supplied) in response to the
HIGHER price they are receiving
(The Law of Supply)
42. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
Qd=Qs
$2.00
$.50
50 15075 125 22525
Supply 1
Notice: Quantity Demanded
Is Greater than Quantity Supplied
At this price
Qs Qd
$1.30
60 85
At a Price of $1.80 (roughly) Qd = Qs at
75 Units.
The market is back in Equilibrium.
$1.80
43. Supply and Demand
Supply DECREASES
Price
of
___
Quantity of _________
D*
S*
Qe
Pe
Qd=Qs
Q1
S1
P1
This is a correctly labeled Supply and
Demand graph showing an INCREASE in
DEMAND…Notice I have replaced the
numerical price and quantity with
alphabetical designations and abbreviated
the Demand and Supply Curves. This makes
this is the way I would like you to draw and
label your supply and demand graphs from
now on.
