1.   The Model of Supply and Demand.

Please go to the link below and read the introduction, then press the “Start”

button at the top and read each page, clicking “Next” at the bottom of the page

until you have finished the “Shortages and Surpluses” page.

http://ingrimayne.saintjoe.edu/econ/DemandSupply/OverviewSD.html

What I want you to remember is that:

-   As demand rises, price rises.

-   As demand goes down, price goes down.

-   As supply rises, price goes down.

-  As supply goes down, price goes up.

Let’s discuss several examples that illustrate these points.

1.      Many people are moving into the Seattle area and are looking for

      apartments.  What do you think will happen to rents?

2.      There is a bad frost in Florida just as harvesting of oranges is about to

       begin.  What do you think will happen to the price of oranges?

In number 1, the demand for apartments is rising, so the price of apartments

(rent) will rise.  Isn’t this intuitive?  If you’re having a hard time finding a place

and then you happen upon a vacancy, and there are three other people standing

there with you wanting to get the apartment, are you going to haggle about the

rent?

In number 2, a frost will cause a decrease in the supply of oranges, so grocery

stores will be unlikely to discount the product because they know they can sell

all of the supply at current prices.  In fact, they are more likely to RAISE prices

because they know people who want oranges will know they’d better buy before

the supply runs out.

Equilibrium Point

In your reading about the supply and demand graphs, remember that the

equilibrium point is the price point on the graph where the amount of supply

exactly meets the amount of demand.  This represents what the price is at the

moment in the marketplace.