Simultaneous Change in Demand and Supply

… of Bacon

in Alberta

Presented by Kim Groome for ECON250, August 2013

Simultaneous Change in Demand and Supply

Simultaneous Change in Demand and Supply

Let’s first consider …Supply and Demand

For kilos of Bacon in AlbertaWeek 1

PriceQuantity

DemandedQuantity Supplied

$1.50 21 $2.00 20 $2.50 19 $3.00 18 $3.50 17 3$4.00 16 6$4.50 15 9$5.00 14 12$5.50 13 15$6.00 12 18$6.50 11 21$7.00 10 24$7.50 9 27$8.00 8 30$8.50 7 33$9.00 6 36

Qo

There is an equilibrium Price at around $5.25 per kilo with a Quantity traded of 13-14 Units.

Note: These numbers are not true, but inspired and altered from Stats Can numbers for 2010 and 2011.

And then …There is an increase in demand, maybe:

A certain fad diet said we could eat bacon all day and lose weight (consumer preference), or maybe Turkey bacon skyrocketed (price of related products), or maybe There is a rumour of upcoming hog shortages (future availability).

The increase in Demand is D2.

D2

And then …There is an increase in supply, maybe:

Sodium nitrate and liquid smoke went on sale (price of resources), or maybe Turkey bacon has a recall from Salmonella (price of substitutes in production).

The increase in Supply is S2.

D2

S2

After the first week period …

There can be, and often are, simultaneous changes in Supply and Demand.

D2

S2

Watch what happens to the Price and the Quantity traded !

D2

S2

After the first week period … .

There can be, and often are, simultaneous changes in Supply and Demand.

Watch what happens to the Price and the Quantity traded !

D2

S2

After the first week period … ..

There can be, and often are, simultaneous changes in Supply and Demand.

Watch what happens to the Price and the Quantity traded !

D2

S2

After the first week period … …

There can be, and often are, simultaneous changes in Supply and Demand.

Watch what happens to the Price and the Quantity traded !

D2

S2

After the first week period … … .

There can be, and often are, simultaneous changes in Supply and Demand.

Watch what happens to the Price and the Quantity traded !

D2

S2

After the first week period … … ..

There can be, and often are, simultaneous changes in Supply and Demand.

Watch what happens to the Price and the Quantity traded !

D2

S2

After the first week period … … …

There can be, and often are, simultaneous changes in Supply and Demand.

Watch what happens to the Price and the Quantity traded !

D2

S2

After the first week period … … …

There can be, and often are, simultaneous changes in Supply and Demand.

Watch what happens to the Price and the Quantity traded !

D2

S2

So …WHAT happens to the Price and the

Quantity traded?

Refer to the flows of: Demand shortage P & Q traded

Supply shortage P & Q traded

Demand surplus P & Q traded

Supply surplus P & Q traded

D2

S2

It is possible, occasionally, that changes in Demand and in Supply result in no Price change.IN FACT, RARELY DOES PRICE OR QUANTITY STAY THE SAME. Let’s see why …

Q2

Know these !!!

Know this is rare!!!

If both Demand & Supply increase? Demand P & Q traded

Supply P & Q traded

D2

S2

In both situations, demand and supply increased.In both situations Quantity traded increased.

However, the new Price has increased in the first situation, and decreased in the second.When both Demand and Supply increase, quantity increases, and Price is indeterminate.

P?Price is

indeterminate!

Quantity traded

D2

S2

Q2Q2

If both Demand & Supply decrease?

Supply P & Q traded

Demand P & Q traded

D2

S2

In both situations, demand and supply decreased.In both situations Quantity traded decreased.

However, the new Price has increased in the first situation, and decreased in the second.When both Demand and Supply decrease, quantity decreases, and Price is indeterminate.

P?Price is

indeterminate!

Quantity traded

D2

S2

Q2 Q2

Demand P & Q traded

If Demand increases & Supply decreases?

Supply P & Q traded

D2

S2

In both situations, demand increased and supply decreased.In both situations, Price increased.

However, the new Quantity traded has increased in one, and decreased in the other.When Demand increases and Supply decreases, price increases, Quantity is indeterminate.

Q?Quantity is

indeterminate!

Price

D2

S2

Q2Q2

Supply P & Q traded

If Demand decreases & Supply increases? Demand P & Q traded

D2

S2

D2

S2

Q2 Q2

Price Q?Quantity is

indeterminate!

In both situations, demand decreased and supply increased.In both situations, Price decreased.

However, the new Quantity traded has decreased in one, and increased in the other.When Demand decreases and Supply increases, price decreases, Quantity is indeterminate.

Let’s review:

1. Finish this chart:

Demand P & Q traded

Demand P & Q traded

Supply P & Q traded

Supply P & Q traded

2. Do this increase in Demand and increase in Supply math:

Demand P & Q traded

Supply P & Q traded

Why is ____________ indeterminate? ________________________________________ .

Let’s review:

3. What are 3 of the 5 determinants for changes in Demand?

i)

ii)

iii)

4. What are 4 of the 6 determinants for changes in Supply?

i)

ii)

iii)

iv)

5. Do you find graphing relationships between prices and quantities helps you to visualize the relationship for Demand and Supply?

References

Sayre, J., & Morris, A. J. (2012). Principles of microeconomics. New York, NY: McGraw Hill.

Statistics Canada. (2013). Survey of household spending: Detailed food expenditures. Retrieved August 1, 2013, from http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=2030028