Supply and Demand in Action The Motion of a “Free Market”

Price Qty D1D1 S1S Q1Q1 E1E1 P1P T-Shirts Equilibrium occurs when Demand = Supply

Key Terms for S & D Unit Goods which can “replace” other goods Px good A => Demand good B Goods which “go together” (are needed to use the other) Px good A => Demand good B Gas & Cars Soda & Water Substitute- Compliment-

Changes in Demand When a Determinant of Demand (TIPSE) changes the entire demand curve will shift left or right A “shift” in a demand curve is called a change in demand Right shift is an increase in demand Left shift is a decrease in demand

Determinants of Demand (TIPSE) Tastes Incomes Population Substitute/Complement Price Expectations If TIPSE changes => Draw a New D-Curve!

Example: Change in Demand Event: The price of bottled water increases Price Qty Market for Soda D1D1 D2D2 TIPSE ↓ Price Substitute ↑ ↓ Demand ↑

Worksheet Side #1

Changes in Supply When a Determinant of Supply (TIN) changes the entire supply curve will shift left or right A “shift” in a supply curve is called a change in supply Right shift is an increase in supply Left shift is a decrease in supply Be careful! a “down” shift in supply is an increase in supply

Determinants of Supply (TIN) Technology Input Prices Number of Sellers If TIN changes => Draw a New S-Curve!

Example: Change in Supply Event: IBM enters the Soda market Price Qty S1S1 S2S2 Market for Soda TIN ↓ # of Sellers ↑ ↓ Supply ↑

Worksheet Side #2