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Unit 1: Basic Economic Concepts
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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
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Shifting Supply and Demand
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Yoo-hoo! Big summer blowout!
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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)
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1. New grilling technology cuts production time in half
Price
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D
S
QuantityQe
S1
Pe
P1
Q1
P decreaseQ increase
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2. Price of chicken sandwiches (a substitute) increases
Price
D
S
QuantityQe
D1
Pe
P1
Q1
P increaseQ increase
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3. Price of hamburgers falls from $3 to $1.
Price
D
S
QuantityQe
Pe
P1
Qs
ShortageQd increaseQs decrease
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4. Price for ground beef triples
Price
D
S
QuantityQe
S1
Pe
P1
Q1
P increaseQ decrease
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5. Human fingers found in multiple burger restaurants
Price
D
S
QuantityQe
D1
Pe
P1
Q1
P decreaseQ decrease
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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
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Demand increases AND supply increases
Price
D
S
QuantityQe
D1
PeP1
Q1P indeterminate
Q increase
S1
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P indeterminateQ increase
Trick: Draw it out separately and
combine the results
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P decreaseQ indeterminate
What if supply increases and demand falls?
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P indeterminateQ decrease
What if supply decreases and demand falls?
Supply and Demand Practice Worksheet
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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
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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
