Supply and Demand Shifts in Demand besides current

Supply and Demand Shifts in Demand- besides current price changes what other factors shift demand? (Lower to the left- Rise to the right) When there is an increase in total demand When there is an decrease in total demand Price increases (direct) Price decreases (direct) Price (P) Supply (S) P 1 $5 P e Equilibrium (Qs= Qd) (D 1) $5 P e Equilibrium (Qs= Qd) P 1 (D 1) (D) 5 Demand Shifters Qe Q 1 Quantity (Q) Q 1 (D) Quantity (Q) Qe 1. Change in Taste (Direct) 2. Change in income- normal products- direct, inferior products- inverse 3. Change in market size (number of consumers) - direct 4. Expectations of consumers (future price, future availability, future income) 5. Price of related goods (substitutes – direct, complements- inverse) T I M E R Shifter PPT TC

Difference between the law of demand changes in total demand If people demand more pizza, what has occurred? P 1. The Law of Demand P 1 Price dropped and the quantity demanded increased. P 2 It is a change on the demand slope. 2. There has been a shift in total demand. This occurs when another factor besides a change in price has caused an increase in demand. Q 1 Q 2 Q P P 1 This increase occurs at all price levels and therefore it is a shift of total demand. Q

income taste Law of D exp compl sub M size Law of d

Shifts in Supply- Supply and Demand besides current price changes what other factors shift supply? (lower to the left, rise to the right) When there is an increase in total supplied When there is an decrease in total supplied Price decreases Price increase Price (P) (S 1) Supply (S) P 1 $5 P e Equilibrium (Qs= Qd) P 1 (D) Qe Q 1 Quantity (Q) 7 Supply Shifters 1. Resource Cost (wages and raw materials)- inverse 2. Alternative output price change - inverse 3. Technological improvements 4. Number of Suppliers - direct 5. Producer expectations about future- inverse 6. Subsidies – government gives money to produce - direct 7. Taxes on production- inverse (D) Q 1 Quantity (Q) Qe R A T S Shifter PPT PE S T TC

Supply headlines

I RC J # sup K L M N O P Law of s exp tech tax RC Subsidy

Which is better? Abundance or Scarcity? Explain your logic

The Government can and will use price controls to impact the law of supply and the law of demand. The Government can and will use different methods to shift total supply and total demand. Intended to reach “socially optimal” levels The actions will have intended and unintended consequences.

EQ 3. 9 What is the proper role of Government in the market? To what extent can the Government impact market forces? EQ 3. 12 Why is it important to recognize the seen and the unseen outcomes of a decision? EQ 3. 12 To what extent should the costs and benefits be equally shared?

P P fm Q optimal Q

Car industry subsidies: Abbott Government Fast-tracks inquiry Impact on the supply of cars? - shifter D. C. open battles over minimum wage increase Impact on Supply of goods and services provided by companies paying min. wage? - shifter? Driving age increases to 18 and curfew for new drivers mooted Impact on Demand for gasoline? Shifter? Some health insurance gets pricer as the Affordable Care Act rolls out Why will insurance become more expensive? Look at demand- pre-existing conditions Stressed small liquor sellers may lose licenses Impact on supply liquor? Shifter? New gun control laws expected to rise prices Impact on current total demand 200 drug dealers arrested over the weekend? Impact on supply? And amount of drug dealers Obama: Community college should be ‘as free and universal in America as high school’ “to lower the cost of community college — to zero. ” Impact on current demand when law is passed? Impact on price? Union calls for tariffs to save fruit sector Impact on supply for fruit? - shifter?

When dealing with supply shifters you are in effect creating or removing barriers of entry. Should the government create barriers of entry? EQ 3 -8 What is the proper role of Government in the market? To what extent can the Government impact market forces?

Petition of the Candle makers We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us. We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat. Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support.

Let’s pretend that this was a real petition. Why does the Sun have a natural advantage? As a result what happens to the price natural light as compared to the candle light? Should a law be passed limiting the amount of sunlight?

France specializes in the production of Grapes and Spain specializes in Citrus. You can grown citrus in France if you use the resources to build green houses and other necessary measures to offset the climate and soil. This may result in a higher priced orange from France. If cheaper oranges are traded in from Spain Who would that hurt in France ? Who would it help in France? Should a tariff be passed that restricts the orange trade? Should a law be written that forces people to spend more money on oranges simply because the French do not have the resources to grow oranges? Free trade is being restricted.

Tariffs in effect help a small portion of the population while exerting a cost a larger portion of the population. Why would government pass laws the help the few at the expense of the many?

10/29/13 “Union calls for tariffs to save U. S. fruit sector” If the tariff was passed and it helped the fruit sector, it would be at whose expense? How?

Should laws be made to increase the marginal private benefit of a specific person or industry while increase the marginal social cost? EQ 2 -11 To what extent should the costs and benefits be equally shared?

EQ 3. 12 Why is it important to recognize the seen and the unseen outcomes of a decision?