Supply Increasing or Decreasing---How and why the curves shift

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Supply Increasing or Decreasing---How and why the curves shift


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Supply INCREASES : Supply INCREASES

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 ASSUMPTIONS: 1. The Demand and Supply Curves Are rigid (they keep the same Shape/slope) 2. The market equilibrium price is $1.00 and the equilibrium quantity ( Qd =Qs) is 100 units. Qd=Qs

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs NOW: Something in this Market causes SUPPLY to INCREASE by 50%. Resource prices DECREASE Taxes DECREASE Subsidies INCREASE INCREASE in Technology Positive Extraneous variable Producer Expectations—Price of the good/service will be LOWER in future

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs This means that at EVERY GIVEN PRICE the Quantity SUPPLIED is Going to be 50% more.

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs This means that at EVERY GIVEN PRICE relative to Demand* the Quantity Demanded is going to be 50% more . $2.00 $.50 50 75 225 +50% +50% +50% Demand 1 Demand* Supply 1

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 Now we have a NEW Supply Curve Supply 1 The Supply Curve has shifted to the RIGHT

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 Let’s assume for the moment that the PRICE does NOT change in reaction to this INCREASE in DEMAND

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 At a price of $1.00 the Quantity Supplied is going to be 150 BUT at a price of $1.00 there is still going to be a Quantity Demanded of 100. OUR MARKET IS IN DIS-EQUILIBRIUM!!

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 At a price of $1.00 the Quantity Supplied is going to be 150 BUT at a price of $1.00 there is still going to be a Quantity Demanded of 100. OUR MARKET IS IN DIS-EQUILIBRIUM!! Notice: Quantity Demanded Is LESS than Quantity Supplied At this price Qs Qd

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 At this Price and Quantity Demanded There is no market---The Market Demanders are NOT going to Demand that Quantity at that price. Quantity Supplied is GREATER than Quantity Demanded

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 We have a SURPLUS in the Market! Surplus

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 Surplus This is where it is crucial to understand the difference between a CHANGE in DEMAND or Supply vs a CHANGE in Quantity Demanded or Quantity Supplied

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 Surplus With our change in SUPPLY finished we now turn the focus to MOVEMENTS along our new Supply CURVE Relative to MOVEMENTS along our Demand CURVE…PRICE is going to dictate our changes in Quantity Demanded AND changes in Quantity Supplied

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 Surplus Because there is a SURPLUS in this market, the pressure on the price of the good is going to be DOWNWARD. Let’s assume the Price DECREASES to $.85

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 At $.85 the Quantity Demanded (dictated by DEMAND 1) is 125 AND the Quantity Supplied (Dictated by Supply*) is 135. $.85 135 125

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 $.85 135 125 We are STILL not in Market Equilibrium…Quantity Demanded (60 ) is LESS than Quantity Supplied (85)…A SURPLUS STILL exists in this market. The gap has closed some, but we are not in Market Equilibrium yet where Qd =Qs. Surplus

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 $.85 135 125 The pressure on the price is going to continue...Can you see where we are heading???? The SURPLUS will only be cleared when we reach the intersection of Demand and Supply!!

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 $.85 135 125 As the price decreases Demanders are increasing their Quantity Demanded because as the price Decreases the quantity demanded Increases (Law of Demand).

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 $.85 135 125 Current suppliers (producers) are DECREASING production (Quantity Supplied) in response to the LOWER price they are receiving (The Law of Supply)

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Supply* 100 $1.00 150 Qd=Qs $2.00 $.50 50 75 225 Demand 1 Demand* Supply 1 $.85 135 125 At a Price of $.75 (roughly) Qd = Qs at 130 Units. The market is back in Equilibrium. $.75 130

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ S* Pe D* S 1 P 1 Qe Q 1 This is a correctly labeled Supply and Demand graph showing an INCREASE in Supply…Notice I have replaced the numerical price and quantity with alphabetical designations and abbreviated the Demand and Supply Curves. This is the way I would like you to draw and label your supply and demand graphs from now on.

Supply Decreases : Supply Decreases

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 ASSUMPTIONS: 1. The Demand and Supply Curves Are rigid (they keep the same Shape/slope) 2. The market equilibrium price is $1.00 and the equilibrium quantity ( Qd =Qs) is 100 units. Qd=Qs 50 150 75 125 225 25

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs NOW: Something in this Market causes SUPPLY to DECREASE by 50%. Resource prices INCREASE Taxes INCREASE Subsidies DECREASE DECREASE in Technology Negative Extraneous variable Producer Expectations –price of the good/service will be HIGHER in The future

Supply and Demand Supply INCREASES : Supply and Demand Supply INCREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs This means that at EVERY GIVEN PRICE relative to Supply* the Quantity Supplied is going to be 50% LESS .

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 This means that at EVERY GIVEN PRICE relative to Supply* the Quantity Supplied is going to be 50% LESS . -50% -50% -50%

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 -50% -50% -50% Now we have a NEW Supply Curve Supply 1 The Supply Curve has shifted to the LEFT Supply 1

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Let’s assume for the moment that the PRICE does NOT change in reaction to this DECREASE in SUPPLY

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 At a price of $1.00 the Quantity Supplied is going to be 50 BUT at a price of $1.00 there is still going to be a Quantity Demanded of 100. OUR MARKET IS IN DIS-EQUILIBRIUM!!

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price At a price of $1.00 the Quantity Supplied is going to be 50 BUT at a price of $1.00 there is still going to be a Quantity Demanded of 100. OUR MARKET IS IN DIS-EQUILIBRIUM!! Qs Qd

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd At this Price and Quantity Supplied There is no market---The Market Suppliers are NOT going to Supply that Quantity at that price. Quantity Demanded is GREATER than Quantity Supplied

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd We have a SHORTAGE in the Market! Shortage

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd Shortage This is where it is crucial to understand the difference between a CHANGE in DEMAND or Supply vs a CHANGE in Quantity Demanded or Quantity Supplied

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd Shortage With our change in SUPPLY finished we now turn the focus to MOVEMENTS along our new Supply CURVE Relative to MOVEMENTS along our Demand CURVE…PRICE is going to dictate our changes in Quantity Demanded AND changes in Quantity Supplied

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd Because there is a SHORTAGE in this market, the pressure on the price of the good is going to be UPWARD. Let’s assume the Price INCREASES to $1.20

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd $1.30 60 85 At $1.30 the Quantity Demanded (dictated by DEMAND 1) is 60 AND the Quantity Supplied (Dictated by Supply*) in 85.

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd $1.30 60 85 Shortage We are STILL not in Market Equilibrium…Quantity Demanded (60 ) is LESS than Quantity Supplied (85)…A SURPLUS STILL exists in this market. The gap has closed some, but we are not in Market Equilibrium yet where Qd =Qs.

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd $1.30 60 85 The pressure on the price is going to continue...Can you see where we are heading???? The SHORTAGE will only be cleared when we reach the intersection of Demand and Supply!!

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd $1.30 60 85 As the price increases Demanders are decreasing their Quantity Demanded because as the price Increases the quantity demanded Decreases (Law of Demand).

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd $1.30 60 85 Current suppliers (producers) are INCREASING production (Quantity Supplied) in response to the HIGHER price they are receiving (The Law of Supply)

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ Demand* Supply* 100 $1.00 Qd=Qs $2.00 $.50 50 150 75 125 225 25 Supply 1 Notice: Quantity Demanded Is Greater than Quantity Supplied At this price Qs Qd $1.30 60 85 At a Price of $1.80 (roughly) Qd = Qs at 75 Units. The market is back in Equilibrium. $1.80

Supply and Demand Supply DECREASES : Supply and Demand Supply DECREASES Price of ___ Quantity of _________ D* S* Qe Pe Qd=Qs Q1 S 1 P 1 This is a correctly labeled Supply and Demand graph showing an INCREASE in DEMAND…Notice I have replaced the numerical price and quantity with alphabetical designations and abbreviated the Demand and Supply Curves. This makes this is the way I would like you to draw and label your supply and demand graphs from now on.

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