Unit 1: Basic Economic Concepts 1

Review 1.Explain the Law of Demand 2.Explain the Law of Supply 3.Identify the 5 shifters of demand 4.Identify the 6 shifters of supply 5.Define Subsidy 6.Explain why price DOESN’T shift the curve 7.Define Equilibrium 8.Define Shortage 9.Define Surplus 10.Identify 10 stores in the mall 2 Copyright ACDC Leadership 2015

Shifting Supply and Demand 3 Copyright ACDC Leadership 2015

Yoo-hoo! Big summer blowout! 4 What would happen to the price and quantity of sunblock if summer suddenly became winter?

Supply and Demand Analysis 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) Let’s Practice! 5 Copyright ACDC Leadership 2015

S&D Analysis Practice Analyze Hamburgers 1.New grilling technology cuts production time in half 2.Price of chicken sandwiches (a substitute) increases 3.Price of hamburgers falls from $3 to $1. 4.Price for ground beef triples 5.Human 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) 6 Copyright ACDC Leadership 2015

7 1.New grilling technology cuts production time in half Price 7 D S Quantity QeQe S1S1 PePe P1P1 Q1Q1 P decrease Q increase Copyright ACDC Leadership 2015

8 2. Price of chicken sandwiches (a substitute) increases Price D S Quantity QeQe D1D1 PePe P1P1 Q1Q1 P increase Q increase Copyright ACDC Leadership 2015

9 3. Price of hamburgers falls from $3 to $1. Price D S Quantity QeQe PePe P1P1 QsQs Shortage Qd increase Qs decrease QdQd Copyright ACDC Leadership 2015

10 4. Price for ground beef triples Price D S Quantity QeQe S1S1 PePe P1P1 Q1Q1 P increase Q decrease Copyright ACDC Leadership 2015

11 5. Human fingers found in multiple burger restaurants Price D S Quantity QeQe D1D1 PePe P1P1 Q1Q1 P decrease Q decrease Copyright ACDC Leadership 2015

12 Econmovies Episode 3: Indiana Jones

Double Shifts Suppose the demand for milk increased at the same time as production technology improved. Use S&D Analysis to show what will happen to PRICE and QUANTITY. Double Shift Rule: If TWO curves shift at the same time, EITHER price or quantity will be indeterminate (ambiguous). 13 Copyright ACDC Leadership 2015

14 Demand increases AND supply increases Price D S Quantity QeQe D1D1 PePe P1P1 Q1Q1 P indeterminate Q increase S1S1 Copyright ACDC Leadership 2015

15 P indeterminate Q increase Trick: Draw it out separately and combine the results Copyright ACDC Leadership 2015

16 P decrease Q indeterminate What if supply increases and demand falls? Copyright ACDC Leadership 2015

17 P indeterminate Q decrease What if supply decreases and demand falls?

Supply and Demand Practice Worksheet 18 Copyright ACDC Leadership 2015

19 Voluntary Exchange Activity In the free-market, buyers and sellers voluntarily come together to seek mutual benefits.

Example of Voluntary Exchange Ex: You want to buy a truck so you go to the local dealership. You are willing to spend up to $20,000 for a new 4x4. The seller is willing to sell this truck for no less than $15,000. After some negotiation you buy the truck for $18,000. Analysis: Buyer’ Maximum- Sellers Minimum- Price- Consumer’s Surplus- Producer’s Surplus- $20,000 $15,000 $18,000 $2,000 $3,000 20

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 21

Supply and Demand Review 1.Define the Law of Demand 2.Define the Law of Supply 3.What is the difference between a change in demand and a change in quantity demanded? 4.What happens if price is above equilibrium? 5.What happens if price is below equilibrium? 6.Identify the rule for double shifts in S&D 7.Define consumer surplus 8.Name 10 musical instruments