Chapter 3A

Additional Examples of Supply and Demand

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3A-2

Lettuce

• Supply shifts left for lettuce• Weather destroys part of the crop

• Demand doesn’t change• Consumers still want as much lettuce as

before• Equilibrium price rises which will reduce the

quantity demanded

LO7

3A-3

Lettuce

LO7

D1

S1

Q1

P1

Quantity (pounds)

Pric

e (p

er p

ound

)

S2

Q2

P2

0

3A-4

Exchange Rates

• Exchange rates are the price of one country’s currency in terms of another country’s currency

• Currency appreciation• Currency depreciation

LO7

3A-5

Exchange Rates

LO7

D1

S1

Q1

$1.25

Quantity of euros

Dol

lar p

rice

of 1

eur

o

D2

0

$1.50

Q2

3A-6

Pink Salmon

• Supply shifts right for pink salmon• New technology• New fishers enter the industry

• Demand shifts left for pink salmon• Increases in consumers’ income• Reductions in the price of substitutes

LO7

3A-7

Pink Salmon

LO7

D1

S1

Q1

P1

Quantity (in pounds)

Pric

e (p

er p

ound

)

S2

D2

P2

Q20

3A-8

Gasoline

• Supply of gasoline decreases• Refinery breakdowns• Mideast politics and warfare• Rising price of oil

• Demand for gasoline increases• Consumers’ incomes increased• Low mileage SUVs popular

LO7

3A-9

Gasoline

LO7

D2

S2

Q1

P2

Quantity (in gallons)

Pric

e (p

er g

allo

n)

S1

D1

P1

Q20

3A-10

Sushi

• Supply shifts right• Increase in the number of sushi bars

• Demand shifts right• Consumers’ tastes for sushi increases

LO7

3A-11

Sushi

LO7

D2

S2

Q1

Quantity (pounds)

Pric

e (p

er p

ound

)

S1

D1

P1

Q20

3A-12

Land in San Francisco

• Vertical supply curve• Quantity supplied fixed and unresponsive to

price changes• Demand increase causes price to rise but

quantity stays the same• Demand decrease causes price to fall but

quantity stays the same• Explains high real estate prices in cities

LO7

3A-13

Land in San Francisco

D1

S1

Q0

P1

Quantity of land (acres)

Pric

e (p

er a

cre)

D2

0

P2

LO7

3A-14

Preset Prices

• Preset prices can cause market imbalances• Olympics figure skating finals

• Preset price results in a shortage of tickets• Olympics curling preliminaries

• Preset prices result in a surplus of tickets

LO7

3A-15

Preset Prices

LO7

D

S

P1

P2

Q1 Q2

0

P

Figure SkatingQuantity (tickets)

Pric

e (p

er ti

cket

)

D

S

P1

P2

Q1Q2

0

P

CurlingQuantity (tickets)

Pric

e (p

er ti

cket

)

ab

Shortage

a b

Surplus