Unit 1: Basic Economic Concepts 1. Review 1.Explain the Law of Demand 2.Explain the Law of Supply...

Unit 1: Basic Economic Concepts

Review1. Explain the Law of Demand2. Explain the Law of Supply3. Identify the 5 shifters of demand4. Identify the 6 shifters of supply 5. Define Subsidy6. Explain why price DOESN’T shift the

curve7. Define Equilibrium 8. Define Shortage9. Define Surplus10.Identify 10 stores in the mall

2Copyright ACDC Leadership 2015

Shifting Supply and Demand

Yoo-hoo! Big summer blowout!

What would happen to the price and quantity of sunblock if summer suddenly became winter?

Supply and Demand AnalysisEasy as 1, 2, 3

1. Before the change:• Draw supply and demand • Label original equilibrium price and quantity

2. The change: • Did it affect supply or demand first?• Which determinant caused the shift? • Draw increase or decrease

3. After change: • Label new equilibrium?• What happens to Price? (increase or decrease)• What happens to Quantity? (increase or decrease)

Let’s Practice! 5Copyright ACDC Leadership 2015

S&D Analysis Practice

Analyze Hamburgers1. New grilling technology cuts production time in half2. Price of chicken sandwiches (a substitute) increases3. Price of hamburgers falls from $3 to $1. 4. Price for ground beef triples5. Human fingers found in multiple burger restaurants

1. Before Change (Draw equilibrium) 2. The Change (S or D, Identify Shifter)3. After Change (Price and Quantity After)

1. New grilling technology cuts production time in half

QuantityQe

P decreaseQ increase

Copyright ACDC Leadership 2015

2. Price of chicken sandwiches (a substitute) increases

QuantityQe

P increaseQ increase

3. Price of hamburgers falls from $3 to $1.

QuantityQe

ShortageQd increaseQs decrease

QdCopyright ACDC Leadership 2015

4. Price for ground beef triples

QuantityQe

P increaseQ decrease

5. Human fingers found in multiple burger restaurants

QuantityQe

P decreaseQ decrease

Econmovies Episode 3: Indiana Jones

Double Shifts• Suppose the demand for milk increased at

the same time as production technology improved.

• Use S&D Analysis to show what will happen to PRICE and QUANTITY.

Double Shift Rule: If TWO curves shift at the same time, EITHER price or quantity

will be indeterminate (ambiguous).13Copyright

ACDC Leadership 2015

Demand increases AND supply increases

QuantityQe

Q1P indeterminate

Q increase

P indeterminateQ increase

Trick: Draw it out separately and

combine the results

P decreaseQ indeterminate

What if supply increases and demand falls?

P indeterminateQ decrease

What if supply decreases and demand falls?

Supply and Demand Practice Worksheet

Voluntary Exchange ActivityIn the free-market, buyers and sellers voluntarily come

together to seek mutual benefits.

Example of Voluntary ExchangeEx: 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-

Consumer’s Surplus-

Producer’s Surplus-

$20,000

$15,000

$18,000

$2,000

$3,00020

Consumer Surplus is the difference between what you are willing to pay and what you actually pay.

CS = Buyer’s Maximum – Price

Producer’s Surplus is the difference between the price the seller received and how much they were willing to sell it for.

PS = Price – Seller’s Minimum

Voluntary Exchange Terms

Supply and Demand Review

1. Define the Law of Demand2. Define the Law of Supply3. What is the difference between a change

in demand and a change in quantity demanded?

4. What happens if price is above equilibrium?

5. What happens if price is below equilibrium?

6. Identify the rule for double shifts in S&D 7. Define consumer surplus8. Name 10 musical instruments

Unit 1: Basic Economic Concepts 1. Review 1.Explain the Law of Demand 2.Explain the Law of Supply...

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