Unit 3 Microeconomics:

3.3 - Shifting
Supply & Demand

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 Review
1. Explain the Law of Demand
2. Explain the Law of Supply
3. Identify the 5 shifters of demand
4. Identify the 6 shifters of supply
5. Define Subsidy
6. Explain why price DOESN’T shift the
curve
7. Define Equilibrium
8. Define Shortage
9. Define Surplus
10.Identify 10 stores in the mall
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 Shifting Supply and
Demand

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 Yoo-hoo! Big summer blowout!

What would happen to the price and quantity of

sunblock if summer suddenly became winter? 4
 Supply and Demand Analysis
Easy as 1, 2, 3
1. Before the change:
• Draw supply and demand
• Label original equilibrium price and quantity
2. The change:
• Did it affect supply or demand first?
• Which determinant caused the shift?
• Draw increase or decrease
3. After change:
• Label new equilibrium?
• What happens to Price? (increase or decrease)
• What happens to Quantity? (increase or decrease)
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 S&D Analysis Practice
1. Before Change (Draw equilibrium)
2. The Change (S or D, Identify Shifter)
3. After Change (Price and Quantity After)
Analyze Hamburgers
1. New grilling technology cuts production time in half
2. Price of chicken sandwiches (a substitute) increases
3. Price of hamburgers falls from $3 to $1.
4. Price for ground beef triples
5. Human fingers found in multiple burger restaurants

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 1. New grilling technology cuts production
time in half
Price
S
S1

Pe P decrease
Q increase
P1
D
Qe Q1 Quantity
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 2. Price of chicken sandwiches (a
substitute) increases
Price
S

P1 P increase
Pe Q increase

D1
D
Qe Q1 Quantity
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 3. Price of hamburgers falls from $3 to $1.

Price
S

Shortage
Pe Qd increase
Qs decrease
P1
D
Qs Qe Qd Quantity
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 4. Price for ground beef triples

Price
S1 S

P1
Pe P increase
Q decrease

D
Q1 Qe Quantity
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 5. Human fingers found in multiple burger
restaurants
Price
S

P decrease
Pe Q decrease
P1
D1 D
Q1 Qe Quantity
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 Econmovies
Episode 3: Indiana Jones

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 Double Shifts
• Suppose the demand for milk increased at
the same time as production technology
improved.
• Use S&D Analysis to show what will
happen to PRICE and QUANTITY.
Double Shift Rule:
If TWO curves shift at the same
time, EITHER price or quantity
will be indeterminate (ambiguous). 13
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 Demand increases AND supply increases
Price
S
S1

P1 Pe

D1
D
P indeterminate Qe Q1 Quantity
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 Trick: Draw it out
separately and
combine the results

P indeterminate
Q increase

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 What if supply
increases and
demand falls?

P decrease
Q indeterminate

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 What if supply
decreases and
demand falls?

P indeterminate
Q decrease

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 Supply and Demand
Practice Worksheet

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 Voluntary Exchange Activity
In the free-market, buyers and sellers voluntarily come
together to seek mutual benefits.

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 Example of Voluntary Exchange
Ex: You want to buy a truck so you go to the local
dealership. You are willing to spend up to $20,000 for a
new 4x4. The seller is willing to sell this truck for no less
than $15,000. After some negotiation you buy the truck
for $18,000.
Analysis:
Buyer’ Maximum- $20,000
Sellers Minimum- $15,000
Price- $18,000
Consumer’s Surplus-$2,000
Producer’s Surplus- $3,000 20
 Voluntary Exchange Terms
Consumer Surplus is the difference between
what you are willing to pay and what you
actually pay.
CS = Buyer’s Maximum – Price
Producer’s Surplus is the difference between
the price the seller received and how much
they were willing to sell it for.
PS = Price – Seller’s Minimum
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 Consumer and Producer’s Surplus
P Calculate the area of:
1. Consumer Surplus
2. Producer Surplus
$10
3. Total Surplus S
8 Area of a
triangle is
6 CS 1/2bh:
$5 1.CS= $25
4 2.PS= $20
PS
3.Total= $45
2

1 D
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2 4 6 8 10 Q 22
 Review
P Calculate the area of:
1. Consumer Surplus
2. Producer Surplus
$16 3. Total Surplus
S
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CS
12 1. CS= $20
PS
2. PS= $5
3. Total= $25
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10
D
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Supply and Demand Review
1. Define the Law of Demand
2. Define the Law of Supply
3. What is the difference between a change
in demand and a change in quantity
demanded?
4. What happens if price is above
equilibrium?
5. What happens if price is below
equilibrium?
6. Identify the rule for double shifts in S&D
7. Define consumer surplus
8. Name 10 musical instruments
2008 Audit Exam