Chapter 3: Supply and Demand – DEMAND Wake Up and Don’t Smell the Coffee (p. 61) Why did Starbuck’s raise the price of coffee in 2006? ___________ __________________________________________________________________________________________ Supply and Demand: A Model of a Competitive Market – What is a competitive market? What is the key feature of such a market? What types of markets are not competitive? _______________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ The Demand Curve – Generally, the higher the _________________ of a good or service, the lower the ___________________ demanded by a consumer. This makes the demand curve _________________ sloping. A demand curve is the graphical representation of the _______________________ ______________________, which takes the form of a chart of different quantities ______________________ at different _______________. Because quantity demanded is always inversely related to price, economists call this the ____ ___ ___________. Shifts of the Demand Curve – What two factors had caused demand for coffee to shift right between 2002 and 2006? ____________________________________________________________________________________ When the demand curve shifts, the result is a completely new __________________ _____________________. When the demand curve shifts, we say there has been a change in _____________________. When there has been a movement along a demand curve, was say there has been a change in _____________ _______________. A movement along a demand curve is caused by a change in ____________________. Note that though the chapter has not yet addressed the supply curve, a change in price is caused by a __________ in the supply curve. When this happens, we have a new supply schedule, but not a new ____________________ schedule. Get it? Understanding Shifts of the Demand Curve – The five most important factors that shift the demand curve are captured with the acronym R-I-T-E-N. This stands for change in the price of R_________ ________, change in I_________, change in T________, change in E________________, and change in N____________ of consumers. When the demand curve shifts right, the result is a higher _________ and a higher ___________. Changes in the P of Related Goods and Services – Products are defined as substitutes for each other if _______ ___________________________________________________. List examples of substitutes in your own life: 1____________________________2_____________________________3______________________________ Products are defined as complements if __________________________________________________________ ___________________________________ List examples of complements in your own life: 1_______________ __________________2__________________________________3____________________________________ Changes in Income – A rise in consumers’ income causes demand for ____________________ goods to shift ________________. A decrease in consumers’ income causes demand for _______________________ goods to shift right. List examples of normal goods in your own life: __________________________________________ Why are they normal? _________________________________________________ List examples of inferior goods in your own life: ____________________________________________________ Why do you refer to them as inferior (economically)? ________________________________________________________________ Changes in Tastes – How do economists define changes in tastes? ____________________________________ ________________________________ List examples of changes in tastes that you have experienced in your own life. __________________________________________________________________________________ What would be the impact on the demand curve of each? ____________________________________________ Changes in Expectations – Describe how changes in expectations as to price affect demand. _______________ _______________________________________________________ Describe how changes in expectations as to income affect demand. _____________________________________________________________________ Changes in the Number of Consumers – The demand curve is the _______________________ ________ of all individual demand curves. When there are more consumers, the demand curve shifts __________________. CYU 3-1, 1. For each, write shift or movement along a curve, and describe why. a. b. c. d. e. Page 90 – Complete problem 2 in the space below. Chapter 3: Supply and Demand – SUPPLY The Supply Curve – The supply curve will tell us that the higher the price, the greater the ______________ supplied. Note immediately that if the increase in price is caused by a shift in the demand curve, the increased supply is intended to meet this demand, and will not by itself affect the ____________. Big point. Deep breath. The Supply Schedule and the Supply Curve - The supply curve is the graphical representation of the supply _______________. The supply curve will slope _________________ because the higher the ______________, the higher the _____________________ supplied. This is going to be easy for a bit here, eh? Shifts of the Supply Curve - When there is a shift in the supply curve, we have a new supply ________________ based on a new set of circumstances. When there is a movement along the supply curve, there has been a change in _______________ (which is caused by a shift in demand that is not represented on a graph with only supply). Understanding Shifts of the Supply Curve - When economists talk about an increase in supply, there has been a shift to the _________ of the supply curve. A decrease in supply corresponds with a shift to the ____. Changes in Input Prices – Describe how the price of inputs can affect the supply curve. ___________________ __________________________________________________________________________________________ Changes in the P of Related Goods and Services – Products are defined as substitutes in production for each other if __________________________________________________________. Come up with an example of a substitute in production that you can think of: ____________________________________________________ Products are defined as complements in production if ______________________________________________ ____________________________________________________ Come up with an example of a complement in production that you can think of: ______________________________________________________________ Changes in Technology – Describe how a change in technology can cause the supply curve to shift. _________ __________________________________________________________________________________________ Changes in Expectations – Read the paragraph, but focus on the last few sentences. What is the rule for the impact on the supply curve of a producer’s expectations? ____________________________________________ __________________________________________________________________________________________ Changes in the Number of Producers - How does a change in the number of producers affect the supply curve? __________________________________________________________________________________________ __________________________________________________________________________________________ CYU 3-2, 1. For each, write shift or movement along a curve, and describe why. a. b. c. d. e. Supply, Demand and Equilibrium – How are equilibrium price and equilibrium quantity determined? Why is this called the market-clearing price? ______________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ Why do all sales and purchases in the market take place at the same price? ______________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ Why does the market price fall if it is above the equilibrium price? _____________________________________ __________________________________________________________________________________________ Why does the market price rise if it is above the equilibrium price? ____________________________________ __________________________________________________________________________________________ CYU 3-3, 1. a. b. c. Page 90, Problem 1. a. b. c. d. Problem 3. a. b. c. Problem 4.a. b. c. d.