Calvin and Hobbes Questions

Why is Susie (the girl) upset with

the price that Calvin is charging?
What economic principle does Calvin
cite as the reason for the high
price?
Do you agree or disagree with
Calvins argument of how supply
and demand works? Explain your
answer.

Supply & Demand Terms

Demand
Quantity Demanded
Supply
Quantity Supplied
Normal goods/Inferior goods
Equilibrium
Price Effect
Substitution Effect
Income Effect

Demand/Quantity Demanded
Demand is the desire to
own a good combined
with the ability &
willingness to pay for it.
The Demand curve
shows the relationship of
Price to Quantity from the
consumers perspective.

Quantity Demanded is a point on

the Demand curve

QD is the quantity of a good a

person is willing to buy at a
certain Price.
As Price increases, QD
decreases.
As Price decreases, QD
increases.

Supply/Quantity Supplied
Supply is the amount of
a good producers
produce.
The Supply curve
shows the relationship
of Price to Quantity
from the producers
perspective.

Quantity Supplied is a
point on the Supply curve
The Quantity of a good
producers are willing to
sell at a certain Price.
As Price decreases,
QS decreases.
As Price increases,
QS increases.

Normal goods / Inferior goods

The Demand for
normal goods
increases when
consumer income
rises.

The Demand for

inferior goods
decreases when
consumer income
rises.

Equilibrium
The market state where
economic forces are
balanced.
Equilibrium occurs at the
point where quantity
demanded and quantity
supplied are equal.
At equilibrium the amount
of goods demanded is
equal to the amount of
goods supplied.
Equilibriumis established
due to the forces of
competition and price.

Price Effect
The impact a value has on
the demand for a good.
The price effect consists of
The substitution effect
The income effect

Substitution Effect

Income Effect

Effect caused by
a rise in price.
The consumer is
induced
tobuymore of a
relatively lowerpriced good and
less of a higherpriced one.

Achangein
demand of a
good induced by
a change in
income.
An increase
income increases
demand.

Supply & Demand

There are two
separate laws
Law of Supply
Law of Demand

Each works
independently.
We will discuss
Demand first.

Demand
Schedule
(Ice
Demand
Schedule
(Ice Cream)
Cream)

Price of Ice Cream

Cones

QD of Ice Cream
cones

$.0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00

12
10
8
6
4
2
0

Demand Curve (Ice Cream)

Demand Curve (Ice Cream)

Market
Demand
The Markets
Demand
Schedule (Ice
Cream)
Price of Ice
Cream
Cones

Cathy
s QD

$.0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00

12
10
8
6
4
2
0

Nicks Market QD
QD
7
6
5
4
3
2
1

19
16
13
10
7
4
1

Market Demand

Arbitrage and Scalping

Ticket Demand
Schedule
Price of Tickets
$350

QD of Tickets before
Announcement
2,500

$300

3,000

$250

4,000

$200

5,500

$150

7,500

$100

10,000

Ticket Demand Curve

Complete graph on next slide

Shift of Demand
Curve

Complete
graph on
next slide

Shift of Demand
Curve

Determinates of Demand
(Demand shifters)
1.

consumer taste (preferences)

2.

number of consumers

3.

income

4.

Expectations Concerning Future

Prices or Income

5.

Prices of a substitute good

6.

Price of a complementary good

Lets look at these demand shifters

 Number of Consumers

Original Number of buyers

More buyers

Fewer Buyers

 Expectations Concerning Future Price

Let Pp present Price
Let Fp future Price
If Fp > Pp demand increases in the
present because consumers act before
Prices rise.
If Fp < Pp demand decreases in the
present because consumers wait for
Price to fall.

 Price of
Substitute Goods

Steak

Chicken

 Price of a
Complementary Good

Buns

Hot Dogs

Demand Shift Quiz (4 Questions)

Explain whether each of the

following events
represents:
Shift of Demand curve
Movement along Demand
curve

Customers are willing to pay

more for umbrellas on rainy days.
Shift of
Demand curve
Movement
along Demand
curve

Customers are willing to pay more

for umbrellas on rainy days.
Because of the
rain the QD of
umbrellas is
higher at any
given Price.
This causes a
rightward shift
of the Demand
curve.

When XYZ Telecom offered reduced rates

on weekends, the volume of weekend
calling increased sharply.

Shift of Demand
curve

Movement along
Demand curve

When XYZ Telecom offered reduced rates

on weekends, the volume of weekend
calling increased sharply.
The QD of
weekend calls rises
in response to the
Price reduction.
This causes a
movement along
the Demand curve
to the right.

People buy more roses the week of

Valentine's Day, even though the Prices are
higher than at other times during the year.

Shift of Demand
curve

Movement along
Demand curve

People buy more roses the week of

Valentine's Day, even though the Prices are
higher than at other times during the year.

The Demand for

roses increases
on Valentine's
Day. This causes
a rightward shift
of the Demand
curve.

The rise in the Price of gas leads many

commuters to join carpools.

Shift of Demand
curve

Movement along
Demand curve

The rise in the Price of gas leads many

commuters to join carpools.
The QD of gas
falls in response
to a rise in Price.
This causes a
movement along
the Demand
curve to the left.

Law of Supply

Producers are
profit maximizers

Producers have
an incentive to
produce more
QS.

The graph shows

that as Price so
does QS

Supply Schedule
Price of Tickets

QS of Tickets before
Announcement

$350

9,800

$300

9,500

$250

9,000

$200

8,000

$150

6,000

$100

3,000

Supply Curve

Supply Curve

Shift of Supply Curve

Shift of Supply Curve

Determinants of Supply
(Supply Shifters)
1. Resource Prices
2. Technology
3. Taxes and subsidies
4. The Price of other goods
5. Price expectations
6. number of sellers

Supply Shift Quiz (4 Questions)

Explain whether each of the

following events
represents:
Shift of Demand curve
Movement along Demand
curve

Many strawberry farmers open temporary

roadside stands during harvest season, even
though Prices are usually low at that time.
a. Shift of Supply
curve
b. Movement
along Supply
curve.

Many strawberry farmers open temporary

roadside stands during harvest season, even
though Prices are usually low at that time.
QS of strawberries
is higher at any
given Price. This is
a rightward shift of
the Supply curve.

Immediately after the school year begins,

fast-food chains must raise wages to attract
workers.
a. Shift of the
Supply curve
b. Movement
along the
Supply curve.

Immediately after the school year begins,

fast-food chains must raise wages to attract
workers.

The QS of labor is
lower at any given
wage. This causes a
leftward shift of the
Supply curve
compared to the
summer Supply
curve.
In order to attract
workers, chains
have to offer higher
wages.

Many construction workers move to areas

that have suffered hurricanes, lured by higher
wages.
a. Shift of the
Supply curve
b. Movement
along the
Supply curve.

Hint: we are talking about the QS of labor not the wages.

Many construction workers move to areas that

have suffered hurricanes, lured by higher
wages.

The QS of labor
rises in response to
a rise in wages.
This is a movement
along the Supply
curve.

Since technology has made it possible to build larger, cheaper

per person cruise ships, Caribbean Cruise Line has offered
more cabins at lower Prices.
a. Shift of the
Supply curve
b. Movement along
the Supply curve.

Since technology has made it possible to build larger,

cheaper per person cruise ships, Caribbean Cruise Line
has offered more cabins at lower Prices.
The QS of cabins is
higher at any given
Price. This is a
rightward shift of
the Supply curve.

5 Questions: Shifts & Movements

of Supply or Demand
The following market situations begin
in equilibrium. Then an event occurs.
Use your knowledge to answer each
question and draw a correct graph.
A. What effect will the event have on
Demand and Supply?
B. What will happen to the Price?

1. In 1997 California wine growers

produced a bumper crop of grapes.
A. What will
happen to
Demand &
Supply?
B. What will
happen to
equilibrium
Price?

grapes

1. In 1997 California wine growers produced

a bumper crop of grapes.
Supply curve
shifts right.
Price falls.

2. After a hurricane, Florida hotels find that

many people cancel their vacations,
leaving them with empty hotel rooms.
A. What will
happen to
Demand &
Supply?
B. What will
happen to
equilibrium
Price?
Hotel rooms

2. After a hurricane, Florida hoteliers find that

many people cancel their vacations, leaving
them with empty hotel rooms.
Demand
shifts left.
Price falls.

3. After a heavy snowfall, many people want

to buy snowblowers at the local tool
shop.
A. What will
happen to
Demand &
Supply?
B. What will
happen to
equilibrium
Price?

Snowblowers

3. After a heavy snowfall, many people want

to buy snowblowers at the local tool shop.
Demand
curve shifts
right.
Price rises.

4. As the Price of gas fell people

bought more big cars.
A. What will
happen to
Demand &
Supply?
B. What will
happen to
equilibrium
Price?

Cars

4. As the Price of gas fell people

bought more big cars.

Demand for gas

does not shift,
Price is not a
Demand
shifter.

Demand for
cars shifts right
caused by a
decrease in
Price of its
complement.

Prices rise.

5. As technological innovation lowered the cost of

recycling used paper, paper made from
recycled stock is used more frequently.
A. What will
happen to
Demand &
Supply?
B. What will
happen to
equilibrium
Price?
paper

5. As technological innovation lowered the cost of

recycling used paper, paper made from recycled
stock is used more frequently.
Right shift in
Supply.
Price falls.

Graphing Simultaneous Supply & Demand

Shifts in Demand or Supply

cause Price and Quantity to
change in predictable ways.
But if both curves shift, at the
same times it is difficult to tell
how or if Price and Quantity
change.
Lets look at four examples.

Gretzky Tickets at Equilibrium

What if Market Price is Above Equilibrium?

Economic Fact
The Price of a good will
fall whenever there is a
surplus. That is, whenever
the Price is above
equilibrium.

What if Price is Below Equilibrium?

Economic Fact
The Price of a good will
rise whenever there is a
shortage. That is,
whenever the Price is
below equilibrium.

THANK YOU TO
Erica Thompson, Victor Schools
Ross Hunkovic, Victor Schools
Dave Larsen, Pittsford School
For sharing their outstanding work
which assisted in the making of
this presentation!! Thank you!!!