Bellringer

If you were in charge of merchandising for a shoe company, how would you know

what price to set for each pair of shoes?

Today’s Objectives

• Objective 6: Students will understand the decisions involved when a good or service goes through the stages of production, distribution, and consumption in today’s market economy.

• Objective 8: Students will explain and give examples of how numerous factors influence the supply and demand of products.

Equilibrium

The point at which quantity demanded and quantity supplied are equal.

OR

The amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers.

On your notes: Label the graph provided as shown.

Price

Quantity

Supply

Demand

Equilibrium Quantity

Equi

libriu

m P

rice

Here’s how we draw this to solve word problems . . .

Price

Quantity

S1

D1

Q1

P1

Let’s Practice!• We’ll discuss several scenarios that could cause

either supply or demand to shift.

• Please follow along and complete the notes as we work.

Shifts in Supply and Demand1. Label original graph as shown: 2. Show the change in supply/demand

by shifting the appropriate line left (decrease) or right (increase).

3. Label as “S2” and/or “D2”4. Label new equilibrium price and

quantity: “Q2” and “P2”5. Describe what happened to

equilibrium price and equilibrium quantity (increased or decreased).

Shifts in Supply and Demand• A late freeze destroys much of this year’s

Florida orange crop. What happens to equilibrium price/quantity of orange juice?

– Do we need to shift supply (producers) or demand (consumers)?

– Left (decrease) or Right (increase)?– So price ____ and quantity bought/sold ____

Shifts in Supply and Demand• An ice storm knocks electricity out for a week. How

does this impact the equilibrium price/quantity of gas-powered generators?

– Do we need to shift supply (producers) or demand (consumers)?

– Left (decrease) or Right (increase)?– So price ____ and quantity bought/sold ____

Shifts in Supply and Demand

• Apple finds a way to produce Ipads more quickly. At the same time they are running a promotional sale to get people to buy them

– Do we need to shift supply (producers) or demand (consumers)?

– Left (decrease) or Right (increase)?– So price ____ and quantity bought/sold ____

ON your own: For numbers 1-6, fill in the letter of the graph that illustrates each situation.

• Why do people wait in long lines to buy certain products?

• Why does a house cost more in San Francisco than in Louisville, but a candy bar costs the same in both cities?

• Why does it cost more to go to the movies on Friday night than it does on Tuesday morning?

Discussion Questions

More Practice

• Complete the practice sheet provided. • Be sure to label all parts of your graph

appropriately!

What happens to price when the market has a surplus?

If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. Market price will fall.

Example: if you are the producer, you have a lot of excess inventory that cannot sell. Will you put them on sale? It is most likely yes. Once you lower the price of your product, your product’s quantity demanded will rise until equilibrium is reached. Therefore, surplus drives price down.

What happens to price when the market has a shortage?

If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a shortage. The market is not clear. It is in shortage. Market price will rise because of this shortage.

Example: if you are the producer, your product is always out of stock. Will you raise the price to make more profit? Most for-profit firms will say yes. Once you raise the price of your product, your product’s quantity demanded will drop until equilibrium is reached. Therefore, shortage drives price up.

Surplus vs. Shortage

• If a surplus exists, price must fall in order to attract additional quantity demanded and reduce quantity supplied until the surplus is eliminated.

• If a shortage exists, price must rise in order to attract additional supply and reduce quantity demanded until the shortage is eliminated.

Poster Project #1

SHIFTS IN SUPPLY AND DEMAND1. Browse through the magazines provided and find an

interesting headline, advertisement, or picture. Create a scenario (realistic or hypothetical) that would affect the supply or demand for a specific product. Try to be creative!

2. Cut out the headline/picture and paste it to a piece of poster paper along with a written description of your scenario.

3. Finally, draw a graph that shows how the circumstance will impact equilibrium price and quantity. Be sure to label all parts of your graph!

Poster Project #2

SURPLUS OR SHORTAGE?1. Expand on your original scenario. Explain

that there is either a surplus or shortage. 2. Draw a NEW graph to reflect this.3. Explain whether this will eventually drive the

price up or down.

Volkswagen creates a sleek new design and sets the price at $500,000. However, because of the recession, the market equilibrium price is only $200,000. This creates a surplus of new cars which eventually drives the price down.

Exit Slips

• X1: If the demand for a product decreases, the demand curve/line is going to shift to the ___________________.

• X2: What is one factor that would cause the

supply curve/line to shift to the right?