Economics

1
Economics

• Unit 2

2
Why Did Communism Collapse?Capstone Lesson 6

• The Collapse of communism in the USSR was one of
  the most important events in the 20th Century
• We want to apply economic reasoning to try to
  explain why

3
Visual 1

• What was the position of the former Soviet Union
  for much of the 20th century?
• The Soviet Union was regarded as one of the two
  superpowers.
• How was the Soviet Union Opposed?
• In the Cold War and certain proxy wars,
  including the war in Vietnam, the US and other
  nations opposed the expansion of communism
• What is the Mystery?
• Why did the Soviet Union collapse?

4
Visual 2

• Speculate as to whether or not these questions
  are true or false
• Now Read Activity 1
• Now Lets look back at visual 2 and answer the
  questions
• A. True For much of the twentieth century, nearly
  one-third of the worlds population lived under
  communism or socialism
• B. True The USSR worked form the premise that
  only government planners could provide for the
  overall economic well being of Soviet Society
• C. True In a market economy, prices send
  important information to producers and consumers
  regarding the relative value of goods and
  services
• D. True In command economies, prices are
  controlled by the government

5
Solve the Mystery

• Soviet authorities assumed that government
  planners had superior information, enabling them
  to make better economic decisions that those made
  by individuals acting on their own behalf. But it
  was nearly impossible for government planners to
  understand local circumstances related to the
  production and consumption of goods and services.
  Principle 4.
• The Rules of the soviet economic system abolished
  the incentives that ordinarily encourage
  producers to respond to consumers. First, most
  private ownership was abolished. Individuals were
  no longer allowed to benefit economically from
  the property they owned or worked. Second, under
  communism, the government owned businesses, and
  government managers managed businesses to meet
  government goals, not to make profits. This
  discouraged managers from responding to the
  interests of consumers. Principles 3 and 4

6
Solve the Mystery continued

• In any economic system, prices send valuable
  messages to individuals and business owners. In a
  communist system, prices set by the government
  distorted the information sent to individuals and
  businesses. As a result, people often made poor
  decisions, causing waste and environmental
  damage. Principles 3 and 4
• Visual 3

7
Visual 4

• Basic characteristics of a market economy
• Private Property- Private individuals and groups
  are the owners of the means of production
  including factories, farms, and their own labor.
• Freedom of Choice- Businesses are free to decide
  what products to produce, and they may purchase
  what they need from suppliers of their choice.
  Consumers are free to spend or save their income
  in ways they choose.

8

• Self Interest- People make choices they judge to
  be in their own interest. Adam Smith argued that
  in making such decisions people are led by an
  invisible hand to promote the good of society
  as a whole
• Profit Motive- Businesses are free to earn
  profits. Profits are viewed as rewards earned by
  those who take the risks involved in producing
  goods and services for consumers

9

• Markets and Prices- Most exchanges are handled
  through markets-local, regional, national or
  international. Market prices are established
  through the interaction of buyers and sellers.
  Prices are used to allocate goods and services in
  the economy.
• Competition- Market systems depend on competition
  to restrain participants as they engage in
  self-interested behavior. In competitive systems,
  no one business can control market prices.

10

• Limited Government- Market systems require a
  limited role for government. The governments
  regulatory role is restricted by constitutional
  or other legal limits. Defining and enacting
  property rights, however is an important
  obligation of government in a market system.

11
Visual 5

• Basic characteristics of a command economy
• Public Ownership- The government is the owner of
  the means of production, including factories,
  farms and so forth.
• Centralized Decision Making- A central authority
  such as a bureau, legislature, or government
  official makes the fundamental decisions about
  what and how much will be produced.

12

• Economic Planning- National economic goals are
  often an important focus. Objectives are
  established for each sector of the economy.
  Objectives are fine tuned to provide instructions
  for each farm, factory or mine.

13

• Allocation by Command- A central authority such
  as a bureau, legislature or government official
  makes the fundamental decisions about how goods
  and services are distributed. Raw materials and
  labor are assigned to factories, farms and other
  units of production according to priorities
  established by government.

14
Why did communism collapse?

• Under communism, government was thought to have
  superior information, enabling it to make better
  economic decisions than individuals might make
  acting on their own behalf. The rules of the
  economic system abolished the incentives
  (including private ownership and the profit
  motive) that encourage producers to respond to
  consumers. Prices and quantities set by the
  government distorted the information sent to
  individuals and businesses.

15
Markets

• A place or service that enables buyers and
  sellers to exchange goods and services
• Farmers Market, Supermarket, Flea Market

16
Barter

• Direct exchange of goods and services without the
  use of money
• In order for barter to work you have to have what
  the other wants.
• If I have an item that I want to trade to you for
  another item, you must want what I have

17
Double coincidence of wants

• The situation that exists when A has what B wants
  and B has what A wants

18
Transaction Costs

• The costs involved in making an exchange
• If we just were to concentrate on making
  exchanges through barter without money, we would
  have very high transaction costs

19
Relative Price

• The price of one good expressed in terms of the
  price of another good.
• When people agree to trade or exchange, they must
  establish a rate of exchange or a price
• For example, if a plumber and a doctor agreed to
  exchange services they would have to establish
  the value of one compared to the other. In this
  case they might agree that one hour of the
  doctors services are equal to three hours of the
  plumbers services

20
Demand

• The amount of a product that people are willing
  and able to purchase at each possible price
  during a given period of time, everything else
  held constant
• This is what people are willing and able to buy.

21
Quantity Demanded

• The amount of a product that people are willing
  and able to purchase at a specific price
• Key difference demand refers to every price,
  quantity demanded refers to specific price

22
Law of Demand

• The quantity of a well-defined good or service
  that people are willing and able to purchase
  during a particular period of time decreases as
  the price of that good or service rises and
  increases as the price falls, everything else
  held constant.
• This states that people are going to demand more
  at a lower price and demand less at a higher
  price as long as everything else stays constant.

23
Demand Schedule

• A table or list of the prices and the
  corresponding quantities demanded of a
  particular good or service

Price QuantityDemanded
5 10
4 17
3 26
2 38
1 53
24
Demand Curve

• A graph of a demand schedule that measures price
  on the vertical axis and quantity demanded on the
  horizontal axis

25
Demand Curve

• All demand curves slope down because of the law
  of demand as price falls, quantity demanded
  increases vice versa. Everything held constant
  (with this statement we are assuming that tastes
  dont change)

26
Market Demand

• Is the sum total of all individual demands for a
  particular product.
• We add together the quantity demanded at each
  price not the dollars to determine market demand

27
Changes in Demand

• A number of factors may influence the demand for
  a product, and changes in one or more of those
  factors may cause a shift in the demand curve
• An increase in demand is shown by a shift of the
  demand curve up and to the right
• A decrease in demand is down by a shift of the
  demand curve down and to the left.

28
Increase Decrease
29
Determinants of Demand

• Factors other than the price of the good that
  influence demand-income, tastes, prices of
  related goods and services, expectations, and
  number of buyers.

30
Income

• Demand for any good or service depends on income

31
Normal Good

• Goods for which demand increases as income
  increases.

32
Inferior Goods

• Goods for which demand decreases as income
  increases,
• Ex. Bankruptcy Services, Inexpensive Goods and
  Services

33
Tastes

• Individual Tastes and preferences have an effect
  on demand.

34
Price of Related Goods

• If goods that are similar to the ones you sell go
  up or down in price, quality etc. that will have
  an effect on the demand for your goods.
• Example. Taco Bell finds that its lettuce has e
  coli poisoning. More people eat at McDonalds

35
Substitute Goods

• Goods that can be used in place of each other as
  the price of one rises, the demand for the other
  rises.
• Ex. Fords and Chevys, Coal and Oil, Steak and
  Chicken etc.

36
Complementary Goods

• - Goods that are used together as the price of
  one rises, the demand for the other falls.
• Ex. CD players and CDs, DVD players and DVDs etc

37
Future Expectations

• Future expectations can have an effect on demand
  today. What you think you might earn at a later
  date or if you think an items price will rise in
  the future

38
Number of Buyers

• When there are more buyers in a market place-
  demand will rise

39
Changes in Quantity Demanded

• When the price of a good is the only thing that
  changes the quantity demanded changes but the
  demand curve does not shift.

40
Supply

• The amount of a good or service that producers
  are willing and able to offer for sale at each
  possible price during a period of time,
  everything else held constant.

41
Quantity Supplied

• The amount sellers are willing and able to offer
  at a given price during a particular period of
  time, everything else held constant.

42
Law of Supply

• The quantity of a well-defined good or service
  that producers are willing and able to offer for
  sale during a particular period of time increases
  as the price of that good or service increases
  and decreases as the price decreases, everything
  else held constant.

43
Supply Schedule

• A table or list of prices and corresponding
  quantities supplied of a particular good or
  service

Price QuantitySupplied
1 12
2 28
3 42
4 52
5 60
44
Supply Curve

• A graph of a supply schedule that measures price
  on the vertical axis and quantity supplied on the
  horizontal axis

45
Market Supply

• The quantities that each producer supplies at
  each price are added together to determine market
  supply.

46
Changes in Supply

• A number of factors may influence the supply for
  a product, and changes in one or more of those
  factors may cause a shift in the supply curve
• An increase in supply is shown by a shift of the
  supply curve down and to the right
• A decrease in supply is shown by a shift of the
  supply curve up and to the left.

47
Increase Decrease
48
Determinants of Supply

• Factors other than the price of the good that
  influence supply-prices of resources, technology
  and productivity, expectations of producers,
  number of producers, and the prices of related
  goods and services.

49
Prices of Resources

• If labor decreases, one of the resources used in
  producing goods, then supply will decrease and
  vice versa.

50
Technology and Productivity

• If resources are used more efficiently in
  production, then more of that good can be
  supplied for the same cost.
• Productivity- The quantity of output produced per
  unit of resource.

51
Number of Producers

• When more people produce the supply increases
  (supply curve shifts to the right)

52
Prices of Related Goods and Services

• If goods that are similar to the ones you produce
  change their price your supply will be affected.
• McDonalds Burger King

53
Changes in Quantity Supplied

• When the price of a good is the only thing that
  changes the quantity supplied changes but the
  supply curve does not shift.

54
Equilibrium

• The price where quantity demanded and quantity
  supplied are equal.

55
Disequilibrium

• A point at which quantity demanded and quantity
  supplied are not equal at a particular price

56
Surplus

• A quantity supplied that is larger than the
  quantity demanded at a given price it occurs
  whenever the price is greater than the
  equilibrium price.
• Whenever the price is greater than the
  equilibrium price, a surplus arises.

57
Shortage

• A quantity supplied that is smaller than the
  quantity demanded at a given price it occurs
  whenever the price is less than the equilibrium
  price.
• Whenever the price is below the equilibrium
  price, the quantity demanded is greater than the
  quantity supplied and there is a shortage

58
Changes in the Equilibrium Price Demand Shifts

• This occurs only when the determinants of demand
  change.
• If say taste results in a increase in demand, the
  demand curve will shift to the right, resulting
  in a higher equilibrium price and quantity.
• The opposite could occur as well, an decrease in
  demand would result in a lower equilibrium price
  and quantity.

59
Changes in Equilibrium Price Supply Shifts

• Again focused on changes in the Determinants of
  Supply
• The decrease in supply is represented by the
  leftward shift of the supply curve. A decrease in
  supply with no change in demand results in a
  higher price and a lower quantity. Conversely, an
  increase in supply would be represented as a
  rightward shift of the supply curve. An increase
  in supply with no change in demand would result
  in a lower price and a higher quantity.

60
Equilibrium in Reality

• If not in equilibrium the price and quantities
  demanded and supplied change until equilibrium is
  established.
• All items may not reach equilibrium. Ex. Sale
  items in a store

61
Price Floor

• is a situation in which the price is not allowed
  to decrease below a certain level.
• A price floor keeps the price from falling not
  rising.

62
Price Ceiling

• A situation in which the price is not allowed to
  rise above a certain level.
• Whenever a price ceiling exists a shortage
  results. A price ceiling is only effective if it
  is set below equilibrium price.

63
Round 1, 2, 3

• Visual 1 will help you
• Sellers must report the price to me
• Make as many deals as you can in the time
  permitted.
• You can take a loss in order to get a new
  transaction card
• Visual 1 contains useful information

64
Post Simulation

• At what price was the silver most frequently sold
  at each round? Look at your class tally sheet
• In which round did the greatest spread in prices
  occur?
• Why did the prices become more clustered in later
  rounds?
• Did Buyers or Sellers determine the final market
  price for silver?
• How did competition within both buyers and
  sellers influence price?

65

• Consumer surplus and producer surplus are the
  main reasons why market economies work better
  than command economies. In a voluntary market,
  both buyers and sellers gain.
• Complete Activity 3
• Use the graph provided to plot your points and
  answer the questions provided
• Visual 2
• Review Answers to Activity 3

66
Answers to Activity 3

• A. The lower the price, the more silver people
  want to buy. The higher the price, the less
  silver people want to buy. This is called the law
  of demand.
• B. The lower the price, the less silver people
  want to sell. The higher the price, the more
  silver people want to sell. This is called the
  law of supply.
• C. 4.30, 24 ounces
• D. Hopefully, yes
• E. Markets dont work that way. Equilibrium is a
  tendency. When there is a temporary surplus,
  prices fall, when there is a temporary shortage,
  prices rise. Buyers and sellers are constantly
  interacting as prices constantly change.
• F. Prices were closer to equilibrium as buyers
  and sellers reacted to their experiences and the
  information displayed

67
Review

• In a market who or what determines the
  equilibrium price?
• The interaction of buyers and sellers
• Who gains and who loses when people trade in a
  market?
• Both buyers and sellers gain. There are consumer
  surpluses and producer surpluses

68
DemandCapstone Lesson 8

• DO NOT COPY JUST LISTEN
• One day you are shopping with your friends, and
  you walk into a small greeting card shop close to
  school to buy a birthday card for one of your
  relatives. While you are checking out the cards,
  you overhear the owner complaining that a certain
  style of card is not selling, and the display of
  that card is taking up precious space in the
  small store. Unfortunately, I bought these cards
  up front and they cannot be returned, he says.
  I guess I will just throw them away and use the
  space for something that has a better chance of
  selling. As the store owner looks over to you
  and your friends, he continues I learned in my
  economics class in high school that a person
  shouldnt cry over spilt milk or let costs
  incurred in the past influence future choices,
  right? It becomes obvious that the owner is
  soliciting a response from you.

69
Do you support the owners view or do you suggest
an alternative course of action

• Possible Answers The owner is right
• Lower the price of the cards
• Put them in a better place in the store
• Donate the cards to charity
• Advertise
• Recycle them

70
SALE

• Why do businesses put items on sale?
• To sell more merchandise
• To reduce surplus merchandise
• Avoid throwing items away that may still have
  value
• Increase consumer demand
• Remember a change in price does not change demand

71
If the owner puts the cards that werent selling
on sale, will that be a good way for him to begin
solving his problem?

• Yes, Although the owner cant change his decision
  to buy the cards in the first place, getting
  something for the cards now is better than
  getting nothing, so at the very least the
  decision minimizes loses

72
SALE

• When business people put products on sale, they
  are attempting to predict consumer behavior. They
  are predicting that the number of products bought
  will increase at lower prices. That is not the
  only possible way to increase sales, of course.
  If the owner could change his customers
  perception of value for the cards, the customers
  also would buy more. Changing customers
  perceptions is one of the purposes of marketing
  through advertising.

73
Experiment

• I want to conduct an experiment to see whether
  these predictions of consumer behavior are
  correct.
• I have a candy bar that I put in my lunch today
  but Ive decided to cut out sugar from my diet
  starting today.
• I dont want to waste it and think that somebody
  in here might find some value in consuming it.
• I only have one so I want to make sure that the
  consumer who values it the most gets it, so I am
  going to conduct an auction
• Visual 1

74
Results

• Did anyone choose not to bid on the candy bar?
• Some may see no value others that might not want
  the candy may just bid low to sell it.
• What goes through your mind before a bid is made?
• A calculation of the value of ownership in
  comparison to the cost of buying it-my
  opportunity cost.
• Why does a higher price reduce the number of
  items demanded?
• Higher prices increase the number and value of
  alternative uses for the money. The alternatives
  may provide more satisfaction for some, and they
  will stop bidding. Higher prices also reduce an
  individuals total purchasing power.
• Once a price is established in the market, do you
  think it stays the same for long periods?
• Generally not, because consumer preferences as
  well as other key variables change, and such
  changes influence demand. These changing
  variables actually shift the demand schedule and
  create a new price quantity relationship.

75
Graph

• We can graph this information
• Visual 2 (Everybody gets a copy)
• Write Price near the Vertical Axis
• Write Quantity near the Horizontal axis
• Enter the quantities demanded
• Use the demand schedule to plot the points on the
  chart
• Connect the dots
• Compare yours to mine

76
Summary of Graph

• As the price rose, the quantity people were
  willing and able to buy declined.
• As the price fell, the quantity people were
  willing and able to buy increased

77
Demand

• Sometimes demand for products actually changes
  when certain variables change
• Consumers are influenced by outside factors such
  as income, tastes and preferences, price of
  related products, expectations, and number of
  buyers
• These are the determinants of demand

78
Change in Demand

• To show this we are going to have a second
  auction.
• I found another candy bar
• Also I have read a study that says peoples risk
  of getting cancer and having a heart attack gets
  reduced by eating this candy bar.
• Also if you dont have the money you can pay with
  an IOU
• Visual 1

79
Second Auction

• Everybody gets a new copy of Graph
• Look at new schedule and plot your graph
• How did your buying decision change after you
  learned more about chocolate and had an IOU
  option
• More students interested, both new variables
  increased demand
• How do the two graphs compare?
• Different but the relationship will be the same.
  This is because a change in the determinants of
  demand tastes and preferences, price of related
  goods and income

80
Shifts in Demand

• Raise your right hand if demand in this scenario
  will shift to the right
• Raise your left hand if demand in this scenario
  will shift to the left
• The demand for cars when people get a tax refund
• Right
• The demand for gasoline today when people expect
  prices to fall tomorrow.
• Left
• The demand for Ice Cream when the price of Ice
  Cream drops.
• No hands up-this is a change in quantity
  demanded, not a demand change

81
SupplyCapstone Lesson 9

• DO NOT COPY LISTEN
• The owner of a local fast food restaurant is
  having trouble hiring workers for the closing
  shift. Although the closers have a few more
  responsibilities than other workers, including
  cleaning, the closing shift often fits best with
  students schedules. The owner of the restaurant
  doesnt know what to do. He is angry. He says
  that Young people today are just plain lazy and
  maybe spoiled too.

82
Is the owner right?

• Are there other explanations of why young people
  might not choose to work as closers in the fast
  food restaurant?
• The difficulty of the task
• Value of other ways to spend time
• Hanging out with friends
• Holding better jobs

Being a bat boy might be a better job
83
Producer

• Why do producers offer goods and services for
  sale?
• Producers wish to earn money
• Take pride in producing a good or service
• Price goes up producers want to sell more, and
  vice versa

84
Law of Supply

• To understand this better look at yourself as a
  producer
• You produce labor
• You can sell your labor at the price and to who
  you want
• You probably would want to sell your labor at a
  higher price?

85
Experiment

• Activity 1
• Complete Activity 1
• Visual 1 4-5 volunteers
• What patterns do you observe in the responses on
  Visual 1?
• At low rates of pay, the quantity supplied is
  low. As the rates of pay increase, the quantity
  of supplied increases
• Several students chose not to supply labor at any
  wage rate. Why?
• Low wages turn some away, but some value other
  alternatives so highly that they refuse to work
  even at the 100 pay. Some might choose to work
  less at the 100 pay because they can earn a
  considerable amount of money at that rate in a
  short time
• What influences your decision to work or not to
  work?
• Expected benefits must be equal to or greater
  than the next best use of my time
• Why does a higher wage usually increase the
  number of hours people are willing to work?
• Higher wages provide positive incentives to work.
  These positive incentives generate benefits
  greater than the expected value of the next-best
  alternative
• Would you predict that a different group of
  people would fill out the questionnaire
  differently
• People value things differently and consequently
  make different choices

86
Graph

• Record Information on Activity 1 can be graphed
• Visual 2 (Everybody Gets one)
• Place Price on the Vertical Axis
• Place Quantity on the Horizontal Axis
• Graph, plot points, draw line (curve)

87
Law of supply

• Higher prices higher quantity supplied, lower
  prices lower quantity supplied

88
Determinants of Supply

• Variables other than price that can shift the
  supply curve which include input prices,
  technology, expectations, number of sellers
• Activity 2
• Why did so many farmers leave farming to go into
  other careers?
• Better alternatives, low market prices for crops,
  increased competition from foreign producers,
  high equipment costs, taxes
• When many producers leave a market, what is
  likely to happen to the quantity produced at any
  given price?
• The quantity will fall, the falling quantity is
  pictured by a supply curve that has shifted to
  the left. The supply curve moves on the graph.
  This shift occurs because one of the determinants
  of supply has changed. Number of sellers. When a
  determinant changes the who supply changes

89
Shifts in Supply

• Shift to the left raise left hand
• Shift to the right raise right hand
• The supply of cars when open trade agreements
  bring in new producers.
• Right
• The supply of coffee when freezing temperatures
  hit the major coffee producing regions in Brazil
  and Costa Rica
• Left
• The supply of lumber when a new computerized saw
  reduces the cost of lumber producers
• Right

90
EquilibriumCapstone Lesson 10

• Is a state of balance between opposing forces
• It occurs because everywhere else there is a
  state of imbalance or disequilibrium
• Ball in Yankee Stadium
• Visual 1
• What if the market price were 4
• There would be a surplus of 800 yo-yos because
  the quantity demanded is 600 and the quantity
  supplied is 1,400
• How would sellers get rid of the surplus?
• They would lower the price until all the yo-yos
  offered for sale were sold. The lower price is an
  incentive that increases the quantity demanded
  but decreases the quantity supplied. All the
  yo-yos would be sold at 3, the equilibrium price
• What if the market price were 2
• There would be a shortage of 800 yo-yos. Buyers
  would demand 800 more yo-yos than sellers are
  willing to offer at that price

91
Equilibrium

• Which buyers will get the yo-yos?
• The ones who will pay more. The higher price is
  an incentive that increases the quantity offered
  for sale. Once Again, at 3 the number of yo-yos
  offered for sale in a time period is equal to the
  number of yo-yos consumers are willing and able
  to buy.
• Only at a price of 3 is the number of yo-yos
  sellers are willing and able to sell equal to the
  number consumers are willing and able to buy.
• This is why equilibrium price is 3 and
  equilibrium quantity is 1,000
• This is a process where prices, incentives,
  shortages and surpluses determine an equilibrium
  or resting place
• Prices in equilibrium may not remain so for long.
  Any change in underlying conditions leads to a
  new equilibrium

92
Activity 1

• Complete parts A-E
• Visual 2 (Answers)
• A. Under these conditions, competitive market
  forces would tend to establish an equilibrium
  price of 3 per Frisbee and an equilibrium
  quantity of 200 million Frisbees
• B. If the price currently prevailing on the
  market is 4 per Frisbee, buyers would want to
  buy 150 million Frisbees and sellers would want
  to sell 250 million Frisbees. Under these
  conditions, there would be a surplus of 100
  million Frisbee. Competitive market forces would
  tend to cause the price to decrease to a price of
  3 per Frisbee.
• C. At this new price, buyers would now want to
  buy 200 million Frisbees, and sellers would now
  want to sell 200 million Frisbees. Because of
  this change in price, the quantity demanded
  changed by 50 million Frisbees, and the quantity
  supplied changed by 50 million Frisbees.
• D. If the price currently prevailing on the
  market is 2 per Frisbee, buyers would be wiling
  to buy 250 million Frisbees and sellers would
  want to sell 150 million Frisbees. Under these
  conditions, there would be a shortage of 100
  million Frisbees. Competitive market forces would
  tend to cause the price to increase to a price of
  3 per Frisbee.

93
Activity 1

• E. At this new price, buyers would now want to
  buy 200 million Frisbees, and sellers would now
  want to sell 200 million Frisbees. Because of
  this change in price, the quantity demanded
  change by 50 million Frisbees, and the quantity
  supplied changed by 50 million Frisbees
• F. Under these conditions, competitive market
  forces would tend to establish an equilibrium
  price of 4 per Frisbee and an equilibrium
  quantity of 150 million Frisbees. Compared to the
  equilibrium price in question A, we say that,
  because of this change in underlying conditions,
  the supply changed, and both the equilibrium
  price and the equilibrium quantity changed. The
  equilibrium price increased and the equilibrium
  quantity decreased.
• G. Under these conditions, with the supply
  schedule S1 competitive market forces would tend
  to establish an equilibrium price of 3 per
  Frisbee and an equilibrium quantity of 100
  million Frisbees. Compared to the equilibrium
  price in question F, because of this change in
  underlying conditions, the demand changed. The
  equilibrium price decreased and the equilibrium
  quantity decreased.
• Underlying conditions determinants

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Review

• Why does the price decrease if it is above
  equilibrium?
• The quantity for sale is greater than the
  quantity demanded, so sellers have an incentive
  to lower the price.
• Why does the price increase if it is below
  equilibrium?
• At a price below equilibrium, the quantity
  demanded exceeds the quantity supplied. Buyers
  have an incentive to offer a higher price if they
  want the good.
• For each of the following predict the change in
  equilibrium price of turkeys and explain your
  prediction
• Turkey is called a health food by the US Surgeon
  General
• Price increases for Turkey because demand
  increases and shifts right
• New technology helps turkeys breed faster
• Price increases for Turkey because supply
  increases and shifts right
• Thanksgiving is abolished
• Price decreases for Turkey because demand
  decreases and shifts left