Supply and Demand: What it is, how to graph it, and how to tell

the difference between the graphs!

• This is how you may see the supply and demand graphs on your test! They may look slightly different on the EOC (which is why I have them look slightly different on the quizizz)—but the major elements will be the same!

Copy these graphs into your notes! You will need to know how to draw them later!

• A: Increase in demand

• B: Decrease in demand

• C: Increase in supply

• D: Decrease in supply

Graphing Demand

3

The Demand Curve• A demand curve is a graphical representation of a

demand schedule.

• The demand curve is downward sloping showing the inverse relationship between price (on the y-axis) and quantity demanded (on the x-axis)

• When reading a demand curve, assume all outside

factors, such as income, are held constant.

Let’s draw a new demand curve for cereal…

4

GRAPHING DEMAND

5

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

Draw this large

in your notes

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

GRAPHING DEMAND

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

6

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

Demand

PRICE will cause movement along the Demand Curve…But there are 5 Things that will cause the demand curve to SHIFT!--_TRIBE

WILL CAUSE AN INCREASE IN

DEMAND (SHIFT TO THE RIGHT)

DETERMINANT (SHIFTER) WILL CAUSE A DECREASE IN

DEMAND (SHIFT TO THE LEFT)

• News article comes out talking about the benefit of a

product• Celebrity starts using product• Product becomes very popular

TASTES AND PREFERENCES

• News article comes out talking about the hazards of a product

• Celebrity stops using product• Product loses popularity

• Price of complementary goods goes down

• Price of substitute good goes up

RELATED GOODS

(COMPLEMENTS -AND SUBSTITUTES)

• Price of complementary goodsgoes up

• Price of substitute good goes down

• Income increases—demandfor normal goods increases

• Income decreases—demand for inferior goods increases

INCOME

• Income decreases—demand for normal goods decreases

• Income increases—demand for inferior goods decreases

• Increase in number of buyers—people move into an area BUYERS

• Decrease in number of buyers--people move out of an areas

• Buyers expect price of the good to increase in the future (they will want to buy it NOW)

EXPECTATIONS

• Buyers expect price of the good to decrease in the future (they will want to buy it LATER)

Change in demand Practice: Click through the following scenarios and see if you would be able to identify:

1. The effect on demand

2. The direction the demand curve would shift

Can you draw the graph?

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

10

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

Demand

What if cereal

makes you smarter?

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

11

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

Demand

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

12

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

Demand

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

13

PriceQuantity

Demanded

$5 10 30

$4 20 40

$3 30 50

$2 50 70

$1 80 100

Demand

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

14

PriceQuantity

Demanded

$5 10 30

$4 20 40

$3 30 50

$2 50 70

$1 80 100

Demand

D1

Increase in Demand

Prices didn’t change but

people want MORE

cereal

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

15

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

What if cereal

causes baldness?

Demand

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

16

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

Demand

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

17

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

Demand

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

18

PriceQuantity

Demanded

$5 10 0

$4 20 5

$3 30 20

$2 50 30

$1 80 60

Demand

Change in Demand

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

19

PriceQuantity

Demanded

$5 10 0

$4 20 5

$3 30 20

$2 50 30

$1 80 60

DemandD2

Decrease in Demand

Prices didn’t change but

people want LESS cereal

Change in Demand: Would this lead to an increase in demand for cereal or a decrease in demand for cereal…and WHY?

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Demand

Schedule

10 20 30 40 50 60 70 80

20

PriceQuantity

Demanded

$5 10

$4 20

$3 30

$2 50

$1 80

What if the price

of MILK goes up?

Demand

Answer: Decrease in Demand for Cereal

• Explanation: If the cost of milk (a complementary good) goes up, people will be buying less MILK and less CEREAL! The price of cereal does not change—but people want LESS of it (because now milk is more expensive)

Practice

MARKET: Hamburgers (a normal good)1. Population boom 2. Incomes fall due to recession3. Price for Carne Asada burritos falls to $1 4. Price increases to $5 for hamburgers5. New health craze- “No ground beef”6. Hamburger restaurants announce that they

will significantly increase prices NEXT month 7. Government heavily taxes shake and fries

causes their prices to quadruple.8. Restaurants lower price of burgers to $.50

First identify the determinant (Shifter). Then decide if demand will increase or

decrease. Finally—will the demand curve shift to the left or right?Graph it if you can!

22

CHECK YOUR ANSWERS:

(FOR THE GRAPHING PART, SEE THE

GRAPH EXAMPLES ON SLIDE #6)1. Number of consumers, increase. RIGHT

2. Income, decrease. LEFT

3. Substitutes, decrease. LEFT

4. Price doesn’t shift curve, no change.

5. Tastes and preferences, decrease. LEFT

6. Expectations, increase.LEFT

7. Complements, decrease. LEFT

8. Price doesn’t shift curve, no change.

23

Supply DefinedWhat is supply?

Supply is the different quantities of a good that sellers

are willing and able to sell (produce) at different prices.

What is the Law of Supply?

There is a DIRECT (or positive) relationship between

price and quantity supplied.

•As price increases, the quantity producers make

increases

•As price falls, the quantity producers make falls.

Why? Because, at higher prices profit seeking

firms have an incentive to produce more.

EXAMPLE: Mowing Lawns24

Example of SupplyYou own an lawn mower and you are

willing to mow lawns. How many lawns will you mow at these prices?

Price per

lawn mowed

Quantity

SuppliedSupply

Schedule

25

$1

$5

$20

$50

$100

$1000

GRAPHING SUPPLY

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

Draw this large

in your notes

26

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

GRAPHING SUPPLY

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

27

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What will cause a shift in the supply curve?TRREES!Increase in Supply—

Curve will move Right

DETERMINANTS

(SHIFTERS) OF

SUPPLY

Decrease in Supply—

Curve will move left

• More/better

technology TECHNOLOGY

• Technology breaks

down/is unavailable

• Decrease taxes

• Increase subsidies REGULATION: TAXES AND

SUBSIDIES

• Increase taxes

• Decrease subsidies

• Increase in cost of

land, labor, capital RESOURCE COST• Decrease in cost of

land, labor, capital

• Labor is better

educated/trained EDUCATION• Labor is unskilled

and uneducated

• Seller expects

market to grow in

future

EXPECTATION OF SELLER

• Seller expects

market to dwindle in

future

• Number of sellers

increases SELLERS IN THE MARKET• Number of sellers

decreases28

GRAPHING SUPPLY

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

29

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if new

companies start making

cereal?

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

30

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

31

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

32

PriceQuantity

Supplied

$5 50 70

$4 40 60

$3 30 50

$2 20 40

$1 10 30

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

33

SupplyS2

PriceQuantity

Supplied

$5 50 70

$4 40 60

$3 30 50

$2 20 40

$1 10 30

Increase in SupplyPrices didn’t change but

there is MORE cereal produced

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

34

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if a drought

destroys corn and wheat

crops?

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

35

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

36

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

37

PriceQuantity

Supplied

$5 50 30

$4 40 20

$3 30 10

$2 20 1

$1 10 0

Supply

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

38

Supply

S2

PriceQuantity

Supplied

$5 50 30

$4 40 20

$3 30 10

$2 20 1

$1 10 0

Decrease in SupplyPrices didn’t change but

there is LESS cereal produced

Change in Supply

Qo

$5

4

3

2

1

Price of Cereal

Quantity of Cereal

Supply

Schedule

10 20 30 40 50 60 70 80

39

PriceQuantity

Supplied

$5 50

$4 40

$3 30

$2 20

$1 10

Supply

What if cereal companies

find a quicker way to make

cereal?

Answer: Increase in supply

• Explanation: Technology has improved. Companies can

make more cereal more quickly, so they are willing and able

to supply more cereal (which will create a bigger profit for

them)

40

6 Shifters (Determinants) of Supply

1. Cost of resources

2. Number of Sellers

3. Technology

4. Government regulation: Taxes &

SubsidiesSubsidies

A subsidy is a government payment that supports a business or market.Subsidies cause the supply of a good to increase.

TaxesThe government can reduce the

supply of some goods by placing anexcise tax on them. An excise taxis a tax on the production or sale of

a good.

RegulationRegulation occurs when the

government steps into a market toaffect the price, quantity, or quality of

a good. Regulation usually raisescosts.

5. Education

6. Producer expectationChanges in PRICE don’t shift the curve. It only

causes movement along the curve. 41

Supply PracticeFirst, identify the determinant (shifter) then

decide if supply will increase or decrease

42

ShifterIncrease or

DecreaseLeft or Right

1

2

3

4

5

6

Supply Practice

Hamburgers1. Mad cow disease kills 20% of cows 2. Price of hamburgers increase 30%3. Government taxes burger producers4. Restaurants owners train their

employees in better methods of hamburger flipping.

5. New bun baking technology cuts production time in half

6. Minimum wage increases to $20

1. Which determinant (SHIFTER)?

2. Increase or decrease?

3. Which direction will curve shift?

43

Check your Answers:

1.Decrease in availability of

resources, decrease.

2.Price doesn’t shift curve, no

shift.

3.Government action, decrease.

4.Opportunity cost of alternative

production, decrease.

5.Technology, increase.

6.Price of resources, decrease.

44