Demand and Supply

1
Demand and Supply

• ECO 105
• Lecture 1.6
• 29 August 2008

2
Factors Shifting Demand

• Income
• Other prices
• Tastes
• Expectations

3
Suppose income rises

• What happens to the demand for restaurant meals?
• Yep, thats right. The demand curve shifts
  ________, because restaurant meals are
  ____________________.
• The demand for normal goods

4
Are all goods normal goods?

• Dried beans, potatoes, and peanut butter all
  might be
• The demand for an inferior good
• People shift to

5
Prices of related goods

• What happens to the demand for SUVs when the
  price of gasoline rises sharply?
• SUVs and gasoline are
• An increased price of gasoline

6
Prices of related goods (2)

• What happens to the demand for subcompact cars
  when the price of gasoline rises sharply (and
  stays up)?
• Subcompacts and gasoline are, in a relevant
  sense,
• An increased price of gasoline

7
Tastes

• Consider the tobacco wars.
• Anti-smoking groups
• Tobacco companies try to make
• Both seek to

8
Expectations

• What impact does news of an expected decrease in
  profits have on the market price of a
  corporations stock?
• Demand

9
Supply

• Producers seek to earn a profit
• Several factors affect supplier behavior
• Product
• Input
• T
• E

10
Supply Schedule and Curve

• A supply schedule relates the quantities
  producers are willing to supply, cet. par., to
• Quantity supplied
• Higher prices are

11
Shifts in supply

• You run a midwestern company producing exercise
  equipment.
• An exercise craze sweeps the East Coast
• Aluminum prices drop sharply
• The technology of gear production improves
  significantly...

12
Shifts in supply

• You run a company producing combines to harvest
  corn and soybeans.
• The government increases ethanol subsidies
• Chemists invest a cheaper way to produce
  soy-diesel fuel
• The cost of steel falls significantly...

13
Equilibrium

• How is price determined in competitive markets?
• By
• Equilibrium price is the price
• toward
• maintained until