1. Warm Up 1.Read the article 2.Summarize what the article is saying 3.State if you agree or disagree and why Line was cut off at the top. It reads: if not for the multiple "fiscal crises" created by congress over the past two years

2. Current Events The production cost of an average milk chocolate bar has surged by 25 percent over the last year, due to growing demand in emerging markets and bad weather in cocoa- producing countries. As a result, US retail prices for chocolate are up 7 percent.

3. Practice Graphs

5. Putting Supply and Demand Together Krugman’s Module 7 Demand / Supply

6. Market Equilibrium A market will determine the price at which the quantity of a product demanded is equal to the quantity supplied. At this price, the market will be in equilibrium, meaning that the amount consumers wish to purchase at this price is matched exactly by the amount producers wish to sell.

7. TO DETERMINE EQUILIBRIUM NEED TO GRAPH SUPPLY AND DEMAND TOGETHER Equilibrium occurs when quantity supplied exactly equals quantity demanded. D SPrice Quantity

8. Q o $5 4 3 2 1 P Demand Schedule 10 20 30 40 50 60 70 80 PQd $510 $420 $330 $250 $180 D S Supply Schedule PQs $550 $440 $330 $220 $110 S&D together = E so What is E point on graph below?

9. Q o $5 4 3 2 1 P Demand Schedule 10 20 30 40 50 60 70 80 PQd $510 $420 $330 $250 $180 Supply Schedule PQs $550 $440 $330 $220 $110 Equilibrium Price = $3 (Qd=Qs) Equilibrium Quantity is 30 D S

10. Q o $5 4 3 2 1 P Demand Schedule 10 20 30 40 50 60 70 80 10 PQd $510 $420 $330 $250 $180 Supply Schedule PQs $550 $440 $330 $220 $110 D S What if the price increases to $4?

11. Q o $5 4 3 2 1 P Demand Schedule 10 20 30 40 50 60 70 80 11 PQd $510 $420 $330 $250 $180 Supply Schedule PQs $550 $440 $330 $220 $110 D S At $4, there is disequilibrium. The quantity demanded is less than quantity supplied. Surplus (Qd<Qs) How much is the surplus at $4? Answer: 20

12. Q o $5 4 3 2 1 P Demand Schedule 10 20 30 40 50 60 70 80 12 PQd $510 $420 $330 $250 $180 Supply Schedule PQs $550 $440 $330 $220 $110 D S Answer: 40 What if the price decreases to $2?

13. Q o $5 4 3 2 1 P Demand Schedule 10 20 30 40 50 60 70 80 13 PQd $510 $420 $330 $250 $180 Supply Schedule PQs $550 $440 $330 $220 $110 D S At $2, there is disequilibrium. The quantity demanded is greater than quantity supplied. Shortage (Qd>Qs) How much is the shortage at $2? Answer: 30

14. Q o $5 4 3 2 1 P Demand Schedule 10 20 30 40 50 60 70 80 14 PQd $510 $420 $330 $250 $180 Supply Schedule PQs $550 $440 $330 $220 $110 D S When there is a surplus, producers lower prices The FREE MARKET system automatically pushes the price toward equilibrium. When there is a shortage, producers raise prices

15. Always Assume shifts in supply or demand change equilibrium P and Q instantaneously 15

16. Learning to Diagram the Change is Easy as 1, 2, 3 1.Before the change: Draw supply and demand Label original equilibrium price and quantity 2.The change: Did it affect supply or demand first? Which determinant caused the shift? Draw increase or decrease 3.After change: Label new equilibrium? What happens to Price? (increase or decrease) What happens to Quantity? (increase or decrease)

17. Warm Up: what does this quote mean to you? “You have brains in your head. You have feet in your shoes. You can steer yourself any direction you choose. You're on your own. And you know what you know. And YOU are the one who'll decide where to go...”

18. Review Supply Changes in the Prices of Related Goods or Services A single producer often produces a mix of goods rather than a single product. For example, an oil refinery produces gasoline from crude oil, but it also produces heating oil and other products from the same raw material. When a producer sells several products, the quantity of any one good it is willing to supply at any given price depends on the prices of its other co-produced goods. This effect can run in either direction. An oil refinery will supply less gasoline at any given price when the price of heating oil rises, shifting the supply curve for gasoline to the left. But it will supply more gasoline at any given price when the price of heating oil falls, shifting the supply curve for gasoline to the right. This means that gasoline and other co-produced oil products are substitutes in production for refiners. In contrast, due to the nature of the production process, other goods can be complements in production. For example, producers of crude oil—oil-well drillers— often find that oil wells also produce natural gas as a byproduct of oil extraction. The higher the price at which drillers can sell natural gas, the more oil wells they will drill and the more oil they will supply at any given price for oil. As a result, natural gas is a complement in production for crude oil.

19. SupplySupply Clarification substitutes in production: co-produced products; goods for which producing more of one requires producing less of the other Ex. Gasoline and heating oil complements in production: pairs of goods that must be produced together Ex. Crude oil and natural gas

20. Complements, in other words One of two goods that are produced jointly using the same resource -- that is, the production of one good automatically triggers the production of the other.

21. Substitutes, in other words In terms of supply (that is, substitute-in- production), one of two goods that replace each other in either producing using the same resources in an either/or fashion, such that an increase in the price of one good leads to a decrease in supply and a leftward shift in the supply curve for the other good. If the supply of good 1 decreases as the price of good 2 increases, the goods are substitutes-in- production.

22. Going back to equilibrium Equilibrium= market clearing price The market price will fall if it is above equilibrium and it will rise if it is below equilibrium

23. ANOTHER EXAMPLE USING COFFEE TO GO WITH YOUR BURGER

24. A price above equilibrium creates a surplus

25. A price below equilibrium creates a shortage

26. Remember, when supply has increased, we did not say anything about the price!

27. Remember, at equilibrium, there is no tendency for anything to change!

28. Up for auction: the answers to the next test!

29. Calling all Math fans! Students who truly get this! Graph fans! Challenge fans! Find the equilibrium: Demand Equation : P= 100- 2Q d Supply Equation : P= 10+Q s Qe=30, Pe=$40

30. Shortage and Surplus  Determine the amount Shortage, price falls below equilibrium Surplus, price falls above equilibrium

32. Changing Equilibrium 1.What happens when the demand curve shifts 2.What happens when the supply curve shifts 3.Simultaneous shifts of supply and demand

33. Our world is constantly changing Practice makes perfect

34. Three things we have to know for AP: 1.What shifter is at work in the market? 2. What curve is shifting and in what direction? 3. What happens to equilibrium price and quantity?

35. Led Zeppelin The cost of the concert ticket (label equilibrium price and quantity Now, add in these three steps: 1.Change in tastes 2.Demand shifts to the right 3.P and Q both increase…but why?

36. There is a shortage!! So, the new equilibrium requires a rise in price and quantity

37. What happens when the demand shifts inward? -surplus -Price must fall -Equilibrium quantity must fall

38. Jeans!! 1.Graph for jeans 2.An input price has increased (cotton) 3.Supply of jeans shifts to the left 4.Price increases and quantity decreases…why? 5.Now, draw a new graph for jeans and show technology improving cotton production

39. Warm Up: How does this represent supply and demand?

40. Current Events http://www.nytimes.com/2013/10/25/educati on/despite-rising-sticker-prices-actual-college- costs-stable-over-decade-study-says.html?_r=0 http://www.bbc.co.uk/news/world-europe- 24756409 http://www.bbc.co.uk/news/business- 24610074

41. To summarize how a market responds to a change in demand: An increase in demand leads to a rise in both the equilibrium price and the equilibrium quantity. A decrease in demand leads to a fall in both the equilibrium price and the equilibrium quantity.

42. To summarize how a market responds to a change in supply: An increase in supply leads to a fall in the equilibrium price and a rise in the equilibrium quantity. A decrease in supply leads to a rise in the equilibrium price and a fall in the equilibrium quantity.

43. Increase in demand = higher equilibrium price and a higher equilibrium quantity. Decrease in demand = lower equilibrium price and a lower equilibrium quantity. Increase in supply = lower equilibrium price and a higher equilibrium quantity. Decrease in supply = higher equilibrium price and a lower equilibrium quantity.

44. 1.Demand and Supply move in the same direction 2.Demand and Supply move in opposite directions Two options:

45. When demand increases and supply decreases, the equilibrium price rises but the change in equilibrium quantity is ambiguous. When demand decreases and supply increases, the equilibrium price falls but the change in equilibrium quantity is ambiguous. Opposite

47. http://reffonomics.com/Qd.ht ml http://reffonomics.com/Supply andDemand.html http://reffonomics.com/Qs.html

48. When both supply and demand increase, the equilibrium quantity increases but the change in equilibrium price in ambiguous. When both supply and demand decrease, the equilibrium quantity decreases but the change in equilibrium price is ambiguous. Same

49. Summary: Opposite= quantity is ambiguous Same= price is ambiguous

50. For example, when the Winter Olympics come out, the popularity of snow boarding increases. At the same time, more companies produce more snowboards. How will these effect the market?

51. 1.Graph the Demand Shift and the effects on price and quantity of snowboards (both increase) 2.Graph the Supply Shift and the price decreases and quantity increases Both shifts generate an increase in the quantity, so we can certainly predict a higher equilibrium quantity of snowboards. However the change in price depends on which of the two shifts is stronger. ****There could be no change but there could be an increase or decrease as well for price***

52. For each of the following examples, explain how the indicated change affects supply or demand for the good in question and how the shift you describe affects equilibrium price and quantity. a. As the price of gasoline fell in the United States during the 1990s, more people bought large cars. b. As technological innovation has lowered the cost of recycling used paper, fresh paper made from recycled stock is used more frequently. c. When a local cable company offers cheaper pay-per- view films, local movie theaters have more unfilled seats.

53. The decrease in the price of gasoline caused a rightward shift in the demand for large cars. As a result of the shift, the equilibrium price of large cars rose and the equilibrium quantity of large cars bought and sold also rose The technological innovation has caused a rightward shift in the supply of fresh paper made from recycled stock. As a result of this shift, the equilibrium price of fresh paper made from recycled stock has fallen and the equilibrium quantity bought and sold has risen. The fall in the price of pay-per-view movies causes a leftward shift in the demand for movies at local movie theaters. As a result of this shift, the equilibrium price of movie tickets falls and the equilibrium number of people who go to the movies also falls.

54. Shifting worksheet practice!

55. Worksheets!! Jelly Bean and shifters! Skip number four for jelly beans!

56. For Example An increase in the supply of grapes and a decrease in the demand for wine led to lower wine prices in 2001. An increase in the price of jumbo tires used on mining equipment led to higher prices for copper, coal, and zinc in 2006.

57. The equilibrium price aka the market-clearing price. When supply and demand change, equilibrium price and output change. When only one curve shifts, the resulting changes in equilibrium price and quantity can be predicted. But when both curves shift, we can only predict the change in equilibrium price in some cases, and the change in equilibrium quantity in others, but never both.

58. Use a S&D graph to explain this double shift

59. Answer the following Question The price of cameras decreases and people buy more cameras, this can be explained by: A) an increase in demand for cameras. B) an increase in the supply of cameras. C) a decrease in demand for cameras. D) A decrease in the supply of cameras.

60. The price of cameras decreases and people buy more cameras, this can be explained by: A) an increase in demand for cameras. B) an increase in the supply of cameras. Correct! C) a decrease in demand for cameras. D) A decrease in the supply of cameras.

61. Consumer Surplus is the difference between what you are willing to pay and what you actually pay. CS = Buyer’s Maximum – Price Producer’s Surplus is the difference between the price the seller received and how much they were willing to sell it for. PS = Price – Seller’s Minimum Voluntary Exchange Terms 61

62. Analyze Sale of Hamburgers Again (getting hungry yet?) WHAT IS THE RESULT FROM CHANGES BELOW 1.Price of sushi (a substitute) increases 2.New technology cuts production time 1/2 3.Price of burgers falls from $3 to $1. 4.Price for ground beef triples 5.Fingers found in multiple burger restaurants. 1.Before Change (Draw equilibrium) 2.The Change (S or D, Identify Shifter) 3.After Change (Price and Quantity After)

63. 1.Price of sushi (a substitute) increases D increases 2.New technology cuts production time ½ S increases 3.Price of burgers falls from $3 to $1. no shift 4.Price for ground beef triples s decreases 5.Fingers found in multiple burger restaurants. D decreases