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Unit 1: Supply, Demand, and Consumer Choice 1-10

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Unit 1: Supply, Demand, and Consumer Choice 1-10 * 1. Demand Increases 2. Supply Increases 3. No Shift. Shortage 4. Supply Decreases 5. Demand Decreases Putting ... – PowerPoint PPT presentation

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Title: Unit 1: Supply, Demand, and Consumer Choice 1-10


1
Unit 1 Supply, Demand, and Consumer Choice 1-10
2
Putting Supply and Demand Together!!!
3
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
P
Supply Schedule
Demand Schedule
S
5 4 3 2 1
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
D
o
Q
10 20 30 40 50 60 70
80
3
4
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
P
Supply Schedule
Demand Schedule
S
5 4 3 2 1
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
Equilibrium Price 3 (QdQs)
D
o
Q
10 20 30 40 50 60 70
80
Equilibrium Quantity is 30
4
5
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
P
What if the price increases to 4?
Supply Schedule
Demand Schedule
S
5 4 3 2 1
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
D
o
Q
10 20 30 40 50 60 70
80
5
6
At 4, there is disequilibrium. The quantity
demanded is less than quantity supplied.
P
Supply Schedule
Demand Schedule
S
5 4 3 2 1
Surplus (QdltQs)
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
How much is the surplus at 4? Answer 20
D
o
Q
10 20 30 40 50 60 70
80
6
7
How much is the surplus if the price is 5?
P
What if the price decreases to 2?
Supply Schedule
Demand Schedule
S
5 4 3 2 1
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
Answer 40
D
o
Q
10 20 30 40 50 60 70
80
7
8
At 2, there is disequilibrium. The quantity
demanded is greater than quantity supplied.
P
Supply Schedule
Demand Schedule
S
5 4 3 2 1
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
How much is the shortage at 2? Answer 30
Shortage (QdgtQs)
D
o
Q
10 20 30 40 50 60 70
80
8
9
How much is the shortage if the price is 1?
P
Supply Schedule
Demand Schedule
S
5 4 3 2 1
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
Answer 70
D
o
Q
10 20 30 40 50 60 70
80
9
10
The FREE MARKET system automatically pushes the
price toward equilibrium.
P
Supply Schedule
Demand Schedule
S
5 4 3 2 1
When there is a surplus, producers lower prices
P Qd
5 10
4 20
3 30
2 50
1 80
P Qs
5 50
4 40
3 30
2 20
1 10
When there is a shortage, producers raise prices
D
o
Q
10 20 30 40 50 60 70
80
10
11
Shifting Supply and Demand
12
Supply and Demand Analysis
  • Easy as 1, 2, 3
  • Before the change
  • Draw supply and demand
  • Label original equilibrium price and quantity
  • The change
  • Did it affect supply or demand first?
  • Which determinant caused the shift?
  • Draw increase or decrease
  • After change
  • Label new equilibrium?
  • What happens to Price? (increase or decrease)
  • What happens to Quantity? (increase or decrease)
  • Lets Practice!

13
SD Analysis Practice
  1. Before Change (Draw equilibrium)
  2. The Change (S or D, Identify Shifter)
  3. After Change (Price and Quantity After)
  • Analyze Hamburgers
  • Price of sushi (a substitute) increases
  • New grilling technology cuts production time in
    half
  • Price of burgers falls from 3 to 1.
  • Price for ground beef triples
  • Human fingers found in multiple burger
    restaurants.

14
Double Shifts
  • Suppose the demand for sports cars fell at the
    same time as production technology improved.
  • Use SD Analysis to show what will happen to
    PRICE and QUANTITY.
  • If TWO curves shift at the same time, EITHER
    price or quantity will be indeterminate.

15
Voluntary Exchange
In the free-market, buyers and sellers
voluntarily come together to seek mutual
benefits.
16
Voluntary Exchange
In the free-market, buyers and sellers
voluntarily come together to seek mutual
benefits.
17
Voluntary Exchange
In the free-market, buyers and sellers
voluntarily come together to seek mutual
benefits.
18
Voluntary Exchange
In the free-market, buyers and sellers
voluntarily come together to seek mutual
benefits.
19
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- Consumers Surplus- Producers
Surplus-
20,000
15,000
18,000
2,000
3,000
20
Voluntary Exchange Terms
Consumer Surplus is the difference between what
you are willing to pay and what you actually pay.
CS Buyers Maximum Price Producers Surplus
is the difference between the price the seller
received and how much they were willing to sell
it for. PS Price Sellers Minimum
21
Consumer and Producers Surplus
  • Calculate the area of
  • Consumer Surplus
  • Producer Surplus
  • Total Surplus

P
10 8 6 5 4 2 1
S
CS
  1. CS 25
  2. PS 20
  3. Total 45

PS
D
10
2 4 6 8
Q
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