Intro to Supply and Demand
This workbook focuses on the basics of SUPPLY and DEMAND and serves as introduction to Excel.
KEY IDEAS
When price changes, ceteris paribus , there is a movement along a fixed demand or supply curve.
If a variable other than price changes, the entire demand or supply curve shifts left (decrease) or right (increase).
When price is such that quantity demanded quantity supplied, price tends to rise because there is a shortage (or excess dem
When price is such that quantity demanded = quantity supplied, price has no tendency to change and the market is in equilibriu
Supply and demand analysis is the process by which we figure out the effect on price and quantity from a given shock.
ORGANIZATION
The Demand sheet shows the Law of Demand: when price changes, ceteris paribus , quantity demanded moves in the opposit
The Supply sheet illustrates the Law of Supply: ceteris paribus , price and quantity supplied move together.
The Market sheet puts Demand and Supply together and shows the equilibrium position.
ight (increase).
s a surplus (or excess supply).
is a shortage (or excess demand).
and the market is in equilibrium.
from a given shock.
manded moves in the opposite direction.
Demand for Ground Beef for a family of five per month.
The family uses ground beef for a variety of dishes, including hamburgers.
Given its situtation, including the prices given for various products, income, and preferences, the family decides how much grou
-0.05
Use the scroll bars to 139 Price of Ground Beef (cents per pound)
change the values of
-0.002 99 Price of Hamburger Buns (cents per pack of eigh
the cells in range-0.001 200 Price of Ketchup (cents per bottle)
F5:F11. 0.003 180 Price of Hot Dogs (cents per pack of eight)
The red dot is the 0 $ 387,000 Price of Lamborghini Murcielago
quantity demanded; 0.1
-0.001 30 Household Income (thousands of dollars per yea
the entire line is 0.15 100 Ground Beef Preference (index units; 100 is aver
demand.
10 10.292
Quantity
Demand for Ground Beef
Price Demanded
189
(cents per (pounds per
169 pound) month)
Price (cents/lb))
99 12.292 99 12.292
149 109 11.792 109 11.792
129 119 11.292 119 11.292
129 10.792 129 10.792
109 139 10.292 139 10.292
149 9.792 149 9.792
89
159 9.292 159 9.292
6.292 8.292 10.292 16912.292 14.292
8.792 169 8.792
Quantity (lbs/month)
179 8.292 179 8.292
s, the family decides how much ground beef it demands (or wants to buy).
nd Beef (cents per pound)
burger Buns (cents per pack of eight)
hup (cents per bottle)
Dogs (cents per pack of eight)
borghini Murcielago http://edmunds.com
come (thousands of dollars per year)
Preference (index units; 100 is average taste for ground beef)
Supply of Ground Beef by a farmer.
The farmer raises cattle from which ground beef is made.
Given its situtation, including the prices given for various products, expectations, and technology, the farmer decides how much
Use the scroll bars to10 139 Price of Ground Beef (cents per pound)
change the values -40of 90 Price of Feeder Cattle (cents per pound)
the cells in range -1 100 Price of Cattle Feed (corn in dollars per ton)
F16:F20. -20 100 Expectations about Future Price of Ground Beef
The red dot is the
53.392 100 Technology (index units; 100 is the current produ
quantity supplied; the10 1029.2
entire line is supply.
Quantity
Supply of Ground Beef
Price Supplied
189
(cents per (pounds per
169 pound) month)
Price (cents/lb))
99 629.2 99 629.2
149 109 729.2 109 729.2
129 119 829.2 119 829.2
129 929.2 129 929.2
109 139 1029.2 139 1029.2
149 1129.2 149 1129.2
89
159 1229.2 159 1229.2
129.2 629.2 1129.2 169 1629.2 1329.2 169 1329.2
Quantity (lbs/month)
179 1429.2 179 1429.2
ology, the farmer decides how much ground beef to supply (or produce).
nd Beef (cents per pound)
er Cattle (cents per pound)
e Feed (corn in dollars per ton)
about Future Price of Ground Beef (index units; 100 is constant expectations)
index units; 100 is the current production technology)
Market for Ground Beef
Unlike demand or supply alone, where individuals decide how much to buy or sell at given prices (and given other variables), w
price is determined by the forces of supply and demand. In other words, price adjusts based on the buying and selling decision
DEMAND
As in the Demand sheet, -0.05 159 Price of Ground Beef (cents per pound)
-0.002
these scroll bars shift 99 Price of Hamburger Buns (cents per pack of
Demand. -0.001 200 Price of Ketchup (cents per bottle)
0.003 180 Price of Hot Dogs (cents per pack of eight)
Use the Current Price 0 $ 387,000 Price of Saleen S7 Supercar
below
Scroll Bar-0.001 to change 0.1 30 Household Income (thousands of dollars per
the price. 0.15 100 Ground Beef Preference (index units; 100 is a
100000 Number of Buyers
10 929,200
These scroll bars shift
Supply. SUPPLY
10 159 Price of Ground Beef (cents per pound)
Use the Current Price -40 90 Price of Feeder Cattle (cents per pound)
Scroll Bar below to set a -1 100 Price of Cattle Feed (corn in dollars per ton)
price and click the -20 100 Expectations about Future Price of Ground B
Equilbrate button to see
53.392 100 Technology (index units; 100 is the current pr
the market work. 1000 Number of Sellers
1,229,200
Current Price Scroll Bar
159 Price of Ground Beef (cents per pound)
Quantity
Market for Ground Beef
Price Demanded
189
(cents per (pounds per
169 pound) month)
Price (cents/lb))
99 1229200 629200 99 1229200
Pe 139.00 109149 1179200 729200 109 1179200
Qe 1,229,200 129 119 1129200 829200 119 1129200
129 1079200 929200 129 1079200
109 139 1029200 1029200 139 1029200
149 979200 1129200 149 979200
89
159 929200 1229200 159 929200
129200 629200
169 1129200 1629200
879200 1329200 169 879200
Quantity (lbs/month)
179 829200 1429200 179 829200
50
Speed of Convergence
Speed Animate
The Speed of P Pe Diff Next
Speed Convergence P
Convergence Scroll Bar sets how fast the market equilibrates. The
gives no159
extreme left 1 139 20 0.5 149
convergence and the extreme right gives instant convergence.
s (and given other variables), when we put demand and supply together,
n the buying and selling decisions of the buyers and sellers.
nd Beef (cents per pound)
burger Buns (cents per pack of eight)
hup (cents per bottle)
Dogs (cents per pack of eight)
en S7 Supercar http://www.saleen.com/
come (thousands of dollars per year)
Preference (index units; 100 is average taste for ground beef)
nd Beef (cents per pound)
er Cattle (cents per pound)
e Feed (corn in dollars per ton)
about Future Price of Ground Beef (index units; 100 is constant expectations)
ndex units; 100 is the current production technology)
nd Beef (cents per pound)
Quantity
Supplied
(pounds per
month) Market Status
629200 Shortage: 600000
729200 Shortage: 450000
829200 Shortage: 300000
929200 Shortage: 150000
1029200 Equilibrium
1129200 Surplus: 150000
1229200 Surplus: 300000
1329200 Surplus: 450000
1429200 Surplus: 600000