1. Additional Examples of Supply and Demand
Chapter 3A
This appendix provides additional examples of demand and supply analysis using real-world economic occurrences. This is helpful for those trying to understand or explain current events.
Additional Examples of Supply and Demand
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2. Lettuce Supply shifts left for lettuce
Weather destroys part of the crop
Demand doesn’t change
Consumers still want as much lettuce as before
Equilibrium price rises which will reduce the quantity demanded
As a result of bad weather, the supply of lettuce decreases and shifts to the left, but demand has not changed because there haven’t been any changes in any of the determinants of demand. When supply decreases, equilibrium price increases and quantity falls.
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3. Exchange Rates
Exchange rates are the price of one country’s currency in terms of another country’s currency
Currency appreciation
Currency depreciation
Currency appreciation means the value of one of the currencies, in terms of the other, has increased. Currency depreciation means the value of one of the currencies, in terms of the other, has decreased.
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4. Pink Salmon Supply shifts right for pink salmon New technology
New fishers enter the industry
Demand shifts left for pink salmon
Increases in consumers’ income
Reductions in the price of substitutes
Supply shifts due to new technology which increases the catch and lowers the cost of fishing. High profits encourage new fishers to enter the industry. Demand shifts due to increases in consumers’ income causing them to shift away from canned fish such as pink salmon. Reductions in the price of substitutes for pink salmon, such as fresh salmon from the Atlantic, cause the demand for pink salmon to fall.
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5. Gasoline Supply of gasoline decreases Refinery breakdowns
Mideast politics and warfare
Rising price of oil
Demand for gasoline increases
Consumers’ incomes increased
Low mileage SUVs popular
The supply curve for gasoline shifts left due to a decrease in the number of producers, and increases in input costs (oil). The demand curve shifts to the right due to increases in consumers’ income which causes an increase in the demand for the normal good (gasoline) and increased use of automobiles that do not get very good gasoline mileage.
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6. Sushi Supply shifts right Increase in the number of sushi bars
Demand shifts right
Consumers’ tastes for sushi increases
With the increase in the number of sushi bars, there is an increase in the number of sellers; this increases the supply of sushi and shifts the supply curve to the right. A preferable change in tastes for sushi causes demand to increase and the demand curve to shift to the right.
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7. Land in San Francisco Vertical supply curve
Quantity supplied fixed and unresponsive to price changes
Demand increase causes price to rise but quantity stays the same
Demand decrease causes price to fall but quantity stays the same
Explains high real estate prices in cities
When a supply curve is upsloping, any change in demand is tempered by a change in quantity supplied. However, when the supply curve is vertical and fixed, any change in demand only results in changes in price; the quantity supplied stays the same no matter what the price is. There is only so much land available in major cities, like San Francisco, therefore when demand increases, the only market response is an increase in price.
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8. Preset Prices Preset prices can cause market imbalances
Olympics figure skating finals
Preset price results in a shortage of tickets
Olympics curling preliminaries
Preset prices result in a surplus of tickets
Due to the shortage of tickets in the formal market, a secondary market develops and tickets sell for higher prices. It is safe to assume that the shortage was caused by the original price being set too low.
Contrast this to the surplus of tickets to the curling preliminaries. Demand is low for this event and tickets were priced too high causing the stands to be relatively empty. Event officials should lower the price to sell more tickets.
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