CASE STUDY •Two ways to reduce the quantity of smoking demanded: -- Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of cigarette advertising on TV (shift demand curve) -- Raising the price of cigarettes through tobacco taxes (move along demand curve)
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CASE STUDY
• Two ways to reduce the quantity of smoking demanded:
-- Public service announcements, mandatory health warnings on cigarette packages, and the prohibition of cigarette advertising on TV (shift demand curve)
-- Raising the price of cigarettes through tobacco taxes (move along demand curve)
SUMMARYvariable change Demand Shift
Income (Normal) Rise (fall)
Rise (fall) Right (left)
Income (Inferior) Rise (fall)
Fall (rise) Left (right)
Price of substitute Rise (fall)
Rise (fall) Right (left)
Price of complement
Rise (fall)
Fall (rise) Left (right)
Taste Rise (fall)
Rise (fall) Right (left)
Expected Price Rise (fall)
Rise (fall) Right (left)
Number of buyers Rise (fall)
Rise (fall) Right (left)
SUPPLY• Quantity supplied is the amount of a good
that sellers are willing and able to sell.
• Law of Supply– The law of supply states that, other things
equal, the quantity supplied of a good rises when the price of the good rises.
SUPPLY SCHEDULE• Supply Schedule
– The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied.
EXAMPLE OF SUPPLY SCHEDULE
SUPPLY CURVE• Supply Curve
– The supply curve is the graph of the relationship between the price of a good and the quantity supplied.
– When price > equilibrium price, then quantity supplied > quantity demanded. • There is excess supply or a surplus. • Suppliers will lower the price to increase sales,
thereby moving toward equilibrium.
• Shortage– When price < equilibrium price, then quantity
demanded > the quantity supplied. • There is excess demand or a shortage. • Suppliers will raise the price due to too many buyers
chasing too few goods, thereby moving toward equilibrium.
ALTERNATIVE EXAMPLE: #2 LEAD PENCILS
Price Quantity demanded
Quantity supplied
0.05 1000 400
0.10 800 500
0.15 600 600
0.20 400 700
0.25 200 800
QUICK QUIZ 1• Draw demand and supply curves
• Find equilibrium price and quantity
QUICK QUIZ 2• How would following events shift either the
demand or the supply of #2 lead pencil?
-- an increase in the use of standardized exams (using opscan forms)