Econ 1102 Micro Review 1 A Shifts Demand and Supply Price Quantity Consider the market for snow blowers in Minnesota Suppose we start at a CE Suddenly and unexpectedly a huge snow storm hits more snow than expected falls a What is going to be affected Demand or supply for snow blowers Demand b How is this reflected on the graph Demand curve shifts right c How does the new equilibrium compare to the original one Price higher quantity higher A snowblower company SnowblowersRUs decides to reopen an old factory to produce an extra amount of snowblowers for this season a What is going to be affect Demand or supply for snow blowers Supply b How is this reflected on the graph Supply curve shifts right c How does the new equilibrium compare to the second one Price lower quantity higher d How does the new equilibrium compare to the original one Price could be lower or higher quantity is higher Econ 1102 Micro Review 1 Note 1 It is important to understand the difference between moving along the curve and shifting the curve A movement along the curve happens when the price changes but the relationship between price and quantity supplied or demanded does not A shift of the curve happens when the relationship changes i e for any given price the total amount of snowblowers that firms are willing to sell or customers are willing to buy increases Since every point on the line shifts to the right the whole curve shifts to the right Note 2 Supply shifts when the marginal cost i e the cost of making an additional snowblower decreases The company says Hey even though the price hasn t changed now if I sell more snowblowers I can increase profit so it increases production This could happen if one of their inputs labor materials etc suddenly becomes cheaper One example is when for whatever reason a company has to pay its workers higher wages in this case the company will decrease production for all prices meaning supply shifts left Another example is when the price of oil goes down Oil is an input for A LOT of firms so A LOT of firms now have lower costs so they will all increase production Econ 1102 Micro Review 1 C Math Review Equilibrium Price and Quantity HW1 Q10 y 10 x 3x 2y 20 What is x and y Price Quantity Supply P Qsupply 4 Demand P 10 2Qdemand Equations become Supply P Q 4 Demand P 10 2Q Algebra Answer Q 4 10 2Q 3Q 6 Q 2 P 2 4 6 Graph Answer What you would do is carefully draw these lines on graph paper and see where they intersect Econ 1102 Micro Review 1 Additional Problems Q1 Using both the graphical and the algebraic method calculate the CE for Supply P 2Qsupply 8 Demand P 20 2Qdemand 2Q 8 20 2Q 4Q 12 Q 3 P 2 3 8 14 Note that there is always more than one way to solve a system of equations For example we could also add the left hand sides and the right hand sides and set them equal to each other 2P 2Q 8 20 2Q 2P 28 P 14 14 2Q 8 2Q 6 Q 3 Q2 Suppose that researchers find that drinking a cup of coffee every day improves your health How do prices and quantity of coffee change in equilibrium Demand for coffee increases for any price so the demand curve shifts to the right This means price is higher and quantity is higher draw the graph and you ll see
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