Supply and Demand Together. Shift of Demand Curve

1. Time to get slapped upside the head with
“The Invisible Hand”
Supply AND Demand Together
NOTE: If during the power-point transitions the slides appear “Jumpy” well…they
Are…My PPT skills are very average …it is the best I can do…Bear with me…

2. Price
of
___
Quantity of _________
Demand*
Supply*
Pe
Qe
Market for _______________

3. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
NOW: Something in this
Market causes DEMAND
To INCREASE by 50%.
Qd=Qs

4. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
This means that at EVERY GIVEN
PRICE the Quantity Demanded is
Going to be 50% more.
Qd=Qs
Demand*

5. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
This means that at EVERY GIVEN
PRICE relative to Demand* the
Quantity Demanded is going to be
50% more.
$2.00
$.50
50 75 225
+50%
+50%
+50%
Demand 1Demand*

6. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
Now we have a NEW Demand Curve
Demand 1
The Demand Curve has
shifted to the RIGHT
$2.00
$.50
50 75 225
Demand 1Demand*

7. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Let’s assume for the moment
that the PRICE does NOT
change in reaction to this
INCREASE in DEMAND

8. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
At a price of $1.00 the Quantity
Demanded is going to be 150 BUT at a
price of $1.00 there is still going to be
a Quantity Supplied of 100. OUR
MARKET IS IN DIS-EQUILIBRIUM!!

9. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100 Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price
At this Price and Quantity Demanded
There is no market---The Market
Suppliers are NOT going to Supply that
Quantity at that price. Quantity
Demanded is GREATER than Quantity
Supplied

10. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100 Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price
Why are Producers NOT going to
supply 150 units at $1.00? Because
to produce that additional 50 units
it is going to cost them more in
labor, materials, etc…To produce
the additional 50 units they are
going to have to get a higher
price!!!

11. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100 Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price
We have a SHORTAGE in the Market!
ShortageShortage

12. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100 Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price
How do we eliminate this SHORTAGE?
Adam Smith said “the Invisible Hand”
Of the market will work to shrink the
Shortage.
ShortageShortage

13. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100 Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price
This is where it is crucial to understand
the difference between a CHANGE in
DEMAND or Supply vs a CHANGE in
Quantity Demanded or Quantity
Supplied

14. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100 Notice: Quantity Demanded
Is greater than Quantity Supplied
At this price
With our change in DEMAND
finished we now turn the focus to
MOVEMENTS along our new
DEMAND CURVE Relative to
MOVEMENTS along our SUPPLY
CURVE…PRICE is going to dictate our
changes in Quantity Demanded AND
changes in Quantity Supplied

15. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100
Because there is a SHORTAGE in this
market, the pressure on the price of
the good is going to be UPWARD.
Let’s assume the Price INCREASES
to $1.20.

16. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100
At $1.20 the Quantity Demanded
(dictated by DEMAND 1) is 135 AND
the Quantity Supplied (Dictated by
Supply*) in 115.
$1.20
135115

17. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100
We are STILL not in Market
Equilibrium…Quantity Demanded
(135) is GREATER than Quantity
Supplied (115)…A Shortage STILL
exists in this market. The gap has
closed some, but we are not in
Market Equilibrium yet where
Qd=Qs.
$1.20
135
Shortage
115

18. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100
The pressure on the price is going to
continue...Can you see where we
are heading???? The SHORTAGE
will only be cleared when we reach
the intersection of Demand and
Supply!!
$1.20
135115

19. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100
Some Demanders are falling by the
wayside because as the price
increases the quantity demanded
decreases (Law of Demand).
$1.20
135115

20. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100
Current suppliers (producers) are
INCREASING production (Quantity
Supplied) in response to the higher
price they are receiving (The Law of
Supply)$1.20
135115

21. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1
Qd=150Qs-100
At a Price of $1.40 (roughly) Qd = Qs at
120 Units.
The market is back in Equilibrium.$1.20
135115
$1.40
120

22. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
D*
Supply*
Pe
D1
This is a correctly labeled Supply and
Demand graph showing an INCREASE in
DEMAND…Notice I have replaced the
numerical price and quantity with
alphabetical designations and abbreviated
the Demand and Supply Curves. This makes
this is the way I would like you to draw and
label your supply and demand graphs from
now on.
P1
Q1Qe

23. DECREASE IN DEMAND

24. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
ASSUMPTIONS:
1. The Demand and Supply Curves
Are rigid (they keep the same
Shape/slope)
2. The market equilibrium price is $1.00 and
the equilibrium quantity (Qd=Qs) is 100
units.
Qd=Qs

25. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Demand*
Supply*
100
$1.00
NOW: Something in this
Market causes DEMAND
To DECREASE by 50%.
Qd=Qs

26. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
This means that at EVERY GIVEN
PRICE the Quantity Demanded is
Going to be 50% LESS.
Qd=Qs
Demand*

27. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
This means that at EVERY GIVEN
PRICE relative to Demand* the
Quantity Demanded is going to be
50% LESS.
$2.00
$.50
50 75 225
-50%
-50%
-50%
Demand 1Demand*
25

28. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
This means that at EVERY GIVEN
PRICE relative to Demand* the
Quantity Demanded is going to be
50% LESS.
$2.00
$.50
50 75 225
-50%
-50%
-50%
Demand 1Demand*
25

29. Supply and Demand
Demand INCREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
-50%
-50%
-50%
Demand 1 Demand*
25
Now we have a NEW Demand Curve
Demand 1
The Demand Curve has
shifted to the LEFT

30. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1 Demand*
25
Now we have a NEW Demand Curve
Demand 1
The Demand Curve has
shifted to the LEFT

31. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1 Demand*
25
Let’s assume for the moment
that the PRICE does NOT
change in reaction to this
INCREASE in DEMAND

32. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qd=Qs
$2.00
$.50
50 75 225
Demand 1 Demand*
25
At a price of $1.00 the Quantity
Demanded is going to be 50 BUT at a
price of $1.00 there is still going to be
a Quantity Supplied of 100. OUR
MARKET IS IN DIS-EQUILIBRIUM!!

33. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25
At this Price and Quantity Demanded
There is no market---The Market Demanders
are NOT going to Demand that Quantity at that
price. Quantity Supplied is GREATER than
Quantity Demanded
Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50

34. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
We have a SURPLUS in the Market!
SurplusSurplus

35. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
This is where it is crucial to understand
the difference between a CHANGE in
DEMAND or Supply vs a CHANGE in
Quantity Demanded or Quantity
Supplied

36. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
With our change in DEMAND
finished we now turn the focus to
MOVEMENTS along our new
DEMAND CURVE Relative to
MOVEMENTS along our SUPPLY
CURVE…PRICE is going to dictate our
changes in Quantity Demanded AND
changes in Quantity Supplied

37. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
Because there is a SURPLUS in this
market, the pressure on the price of
the good is going to be
DOWNWARD. Let’s assume the
Price DECREASES to $.85

38. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
At $.85 the Quantity Demanded
(dictated by DEMAND 1) is 60 AND
the Quantity Supplied (Dictated by
Supply*) in 85.
$.85
60 85

39. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
$.85
60 85
We are STILL not in Market
Equilibrium…Quantity Demanded
(60 ) is LESS than Quantity Supplied
(85)…A SURPLUS STILL exists in this
market. The gap has closed some,
but we are not in Market
Equilibrium yet where Qd=Qs.
Surplus

40. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
$.85
60 85
The pressure on the price is going to
continue...Can you see where we
are heading???? The SURPLUS will
only be cleared when we reach the
intersection of Demand and
Supply!!

41. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
$.85
60 85
As the price decreases Demanders
are increasing their Quantity
Demanded because as the price
Decreases the quantity demanded
Increases (Law of Demand).

42. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
$.85
60 85
Current suppliers (producers) are
DECREASING production (Quantity
Supplied) in response to the LOWER
price they are receiving (The Law of
Supply)

43. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
Supply*
100
$1.00
150
Qs=100
$2.00
$.50
50 75 225
Demand 1 Demand*
25Notice: Quantity Demanded
Is LESS than Quantity Supplied
At this price
Qd=50
$.85
60 85
At a Price of $.60 (roughly) Qd = Qs at
75 Units.
The market is back in Equilibrium.
$.60

44. Supply and Demand
Demand DECREASES
Price
of
___
Quantity of _________
S*
Pe
Q1
D 1 D*
P1
This is a correctly labeled Supply and
Demand graph showing an DECREASE in
DEMAND…Notice I have replaced the
numerical price and quantity with
alphabetical designations and abbreviated
the Demand and Supply Curves. This is the
way I would like you to draw and label your
supply and demand graphs from now on.
Qe