CHAPTER 4: DEMAND AND SUPPLY
Homework pg. 80 #1 (a)
Surplus = +90
Surplus = +60
Surplus = +30
NONE--EQUILIBRIUM
Shortage = -30
Shortage = -60
Shortage = -90
GRAPH ANSWER FOR PG. 80 #1 a
Price
D
$2.00
$
1.80
surplus
1.60
1.50
1.40
1.20
shortage
1.00
0.80
0
100
120
140
150
160
180
200
Quantities
Demanded and Supplied
220
Homework Pg. 80 #2
 If price is set below equilibrium, not all students
would be able to have lunch (shortage)
 If price is set above equilibrium, the cafeteria would
have some unsold food as some students would be
unable to afford the higher prices (surplus)
Learning Goals:
1. List and explain the non-price factors affecting both
supply and demand.
2. Using graphs, show how each factor either increase or
decreases supply and demand.
RULE OF THUMB
Changes in PRICE= MOVEMENT ALONG
the curve only
Changes in NON-PRICE FACTORS=
SHIFTS the whole curve
How do I know which way to shift the
demand curve?
Demand
= Curve shifts RIGHT
Demand
= Curve shifts LEFT
FACTOR #1: INCOME
 Income
= Demand
 Income
= Demand
The more $$ you have to spend, the greater the demand
for a product.
FACTOR #2: Number and Characteristics
of the Buyers
 Population
= Demand
 Population
= Demand
Characteristics of buyers (demographics) is also important
I.e. greater # of teenagers may increase demand for what
kinds of products?
FACTOR #3: Tastes and Preferences
 Changes in taste or preference for a product causes
increases or decreases in demand
 Example:
 What may happen to demand when customers find out
that there is MSG in one of their favourite food
products?
 Demand likely to DECREASE
FACTOR #3: Tastes and Preferences,
Cont.
 Highly effective advertising campaigns can also shift the
demand curve to the right
 Example:
*TOMS One for One Movement (shoes video—donating
shoes to children in need)
FACTOR #4: Expectations of Future
Prices

Expect price to increase in the future= Demand
increases
**Example= Buy now to avoid a higher price in the future
 Expect price to increase in the future= Demand
decreases
**Example= Plasma TVs (price for these have really
come down since the time when they were first out in the
market)
FACTOR #5: CHANGE IN PRICE OF
SUBSTITUTE PRODUCTS
 I.e. butter and margarine
 Price of substitute increases= Demand increases
 Price of substitute decreases= Demand decreases
FACTOR 5: CHANGE IN PRICE OF
SUBSTITUTE PRODUCTS
Example:




In the market for Coke, a substitute could be Pepsi
Suppose the price of Pepsi rises.
What is the affect on demand for Coke?
Price of Pepsi increases= Demand for Coke increases
Price of Pepsi
= Demand for Coke
Price
Coca-Cola
Price
Pepsi
FACTOR #6: CHANGE IN PRICE OF
COMPLIMENTARY PRODUCTS
 Goods that are sold together along with other goods
(i.e. printers and ink cartridges, DVDs and DVD
players)
 Price of compliment decreases= Demand increases
 Price of compliment increases= Demand decreases
FACTOR #6: CHANGE IN PRICE OF
COMPLIMENTARY PRODUCTS
 Example:
 If the price of gas goes up, what affect may this have
on the demand for trucks?
 Price of Gas Increases= Demand for Trucks Decreases
Let’s Practice!
 Complete Page 88 #1 a-d
 Be ready to use a supply and demand graph to show
your answers visually.
RULE OF THUMB
Changes in PRICE= movement along the
curve only
Changes in NON-PRICE FACTORS= shifts
the whole curve
How do I know which way to
shift the supply curve?
Supply
= Curve shifts RIGHT
Supply
= Curve shifts LEFT
Review…
 Why as prices increase do suppliers want to increase
the quantity supplied?
 To increase REVENUE $$$
FACTOR #1: PRODUCTION COSTS
 i.e. wages, rent, machinery, raw materials, etc.
Revenue- Costs= Profit
 Costs Increase= Supply
Decreases
 Costs Decrease= Supply
Increases
 Changes in production costs affect profits and dictate
how much a supplier can produce
FACTOR #2: NUMBER OF SELLERS
# sellers decrease= Supply decreases
# sellers increases= Supply increases
 As the number of sellers increases, the
quantity supplied at any given price increases,
shifting the supply curve to the right (and the
reverse)
FACTOR #3: TECHNOLOGICAL CHANGE
Technology improvements
= decreased production costs
= Supply increases
FACTOR #4: NATURE AND THE
ENVIRONMENT
Weather changes can have a dramatic impact on supplies
of certain products.
Example:
 A drought dramatically decreases the number of
crops a farmer can produce, therefore supply
decreases
FACTOR #5: PRICES OF RELATED
OUTPUTS
 Some products use the same resources to produce and
therefore changes in the prices of those resources will
affect the supply of other related products.
Example:
 Oats and barley have similar inputs

If the price of barley increases, farmers may switch
from producing oats to producing barley to take
advantage of this high price. Supply for oats will fall.
ASSIGNED WORK
Page 88 #2 and #3