1Econ 101 M. SalemiEcon 101 M. SalemiWhatWhat’’s Behind the Demand Schedule?s Behind the Demand Schedule?ReviewReviewRational individuals do less of an activity as Rational individuals do less of an activity as its cost rises.its cost rises.There are almost always substitutes for the There are almost always substitutes for the goods and services we demand.goods and services we demand.Consumer surplus is the difference between Consumer surplus is the difference between our reservation price and what we pay.our reservation price and what we pay.What have we learned? What have we learned? Econ 101 M. SalemiEcon 101 M. SalemiWeek 4 Recitation AssignmentWeek 4 Recitation AssignmentFind and put in your journal a news article Find and put in your journal a news article that concerns a market allocation issue. In that concerns a market allocation issue. In your journal, write 200 words explaining your journal, write 200 words explaining how demand and supply can be used to how demand and supply can be used to interpret the article.interpret the article.Review endReview end--ofof--chapter problems. Raise chapter problems. Raise your questions about these problems in your questions about these problems in recitation.recitation.Econ 101 M. SalemiEcon 101 M. SalemiReview Review What shifts the demand schedule?What shifts the demand schedule?The demand schedule gives the relationship The demand schedule gives the relationship between quantity demanded and price between quantity demanded and price with with other demand factors other demand factors unchangedunchanged..When other demand factors change, the When other demand factors change, the demand schedule shifts.demand schedule shifts.2Use Your Clickers To Answer The Following Graded QuestionWhich of the following could account for falling rents in Manhattan in 2009?Rents in Manhattan fell because…A. Rent ceilings on Manhattan apartments were eliminated.B. Rent floors on Manhattan apartments were raised.C. Incomes of Manhattan consumers fell due to the recession.D. Several large Manhattan apartment building were demolished to make a new subway line.Econ 101 M. SalemiEcon 101 M. SalemiShifts in the Supply scheduleShifts in the Supply scheduleThe supply schedule gives the relationship The supply schedule gives the relationship between quantity supplied and price with between quantity supplied and price with other supply factors unchangedother supply factors unchanged..When other supply factors change, the When other supply factors change, the supply schedule shifts.supply schedule shifts.Econ 101 M. SalemiEcon 101 M. SalemiWhat Happens in the Pizza Market if What Happens in the Pizza Market if There is an Increase in the Price of There is an Increase in the Price of Mozzarella Cheese?Mozzarella Cheese?Why does supply for pizza fall?Why does supply for pizza fall?The higher cost of Mozzarella means pizza is The higher cost of Mozzarella means pizza is more expensive to produce than before.more expensive to produce than before.By how much does the supply of pizza fall?By how much does the supply of pizza fall?The supply price rose by $0.75 for each The supply price rose by $0.75 for each quantity. The effect on quantity is different for quantity. The effect on quantity is different for different prices because of the stairdifferent prices because of the stair--step shape step shape of the supply schedule.of the supply schedule.3Econ 101 M. SalemiEcon 101 M. SalemiThe Effect on the Pizza Market The Effect on the Pizza Market Of an Increase in the Price of Cheese.Of an Increase in the Price of Cheese.The Effect on the Pizza Market of a Decrease In Supply$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.000 200 400 600 800 1000 1200 1400 1600Slices of PizzaDollars per sliceDemandOriginal SupplyDecreased SupplyEcon 101 M. SalemiEcon 101 M. SalemiWhat is the effect on the pizza market?What is the effect on the pizza market?What is the effect on equilibrium price?What is the effect on equilibrium price?The equilibrium price increases from $2.50 The equilibrium price increases from $2.50 to $3.00 per slice.to $3.00 per slice.What is the effect on equilibrium quantity?What is the effect on equilibrium quantity?The equilibrium quantity falls from 600 The equilibrium quantity falls from 600 slices per day to 400 slices per day.slices per day to 400 slices per day.Econ 101 M. SalemiEcon 101 M. SalemiThe Effect on the Pizza Market The Effect on the Pizza Market Of an Increase in the Price of Cheese.Of an Increase in the Price of Cheese.The Effect on the Pizza Market of a Decrease In Supply$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.000 200 400 600 800 1000 1200 1400 1600Slices of PizzaDollars per sliceDemandOriginal SupplyDecreased SupplyEcon 101 M. SalemiEcon 101 M. SalemiWhat is the effect on the pizza market?What is the effect on the pizza market?If the supply price rose by $0.75 per slice If the supply price rose by $0.75 per slice why did the equilibrium price rise only by why did the equilibrium price rise only by $0.50 per slice?$0.50 per slice?Consumers are not willing to buy 600 slices Consumers are not willing to buy 600 slices at a price $3.25 ($2.50 + $0.75). The at a price $3.25 ($2.50 + $0.75). The quantity demanded falls because of the quantity demanded falls because of the increase in price. increase in price.4Econ 101 M. SalemiEcon 101 M. SalemiSTONER: Factors that Shift SupplySTONER: Factors that Shift SupplySSubsidies and Taxesubsidies and TaxesTTechnological Progressechnological ProgressOOther Goods (prices of goods that producers ther Goods (prices of goods that producers might produce)might produce)NNumber of Sellersumber of SellersEExpectations (of relevant future prices)xpectations (of relevant future prices)RResource Costs (prices of inputs )esource Costs (prices of inputs )Econ 101 M. SalemiEcon 101 M. SalemiUse Your Clickers To Answer Use Your Clickers To Answer The Following The Following NonNon--Graded QuestionGraded QuestionEcon 101 M. SalemiEcon 101 M. SalemiIf the price of chicken feed falls, the If the price of chicken feed falls, the equilibrium price of equilibrium price of chickenchickenwill_____ and will_____ and the equilibrium price of the equilibrium price of beefbeefwill _______will _______A.A.Fall, FallFall, FallB.B.Fall, RiseFall, RiseC.C.Rise, FallRise, FallD.D.Rise, RiseRise, RiseEcon 101 M. SalemiEcon 101 M. SalemiHow does a decrease in the price of How does a decrease in the price of