{"id":170,"date":"2020-03-24T04:51:29","date_gmt":"2020-03-24T04:51:29","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/chapter\/putting-it-together-supply-and-demand\/"},"modified":"2023-05-22T19:20:48","modified_gmt":"2023-05-22T19:20:48","slug":"putting-it-together-supply-and-demand","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/chapter\/putting-it-together-supply-and-demand\/","title":{"raw":"Putting It Together: Supply and Demand","rendered":"Putting It Together: Supply and Demand"},"content":{"raw":"<h2>Summary<\/h2>\nThe goal of this module was to explain how demand and supply for a good or service determine prices and quantities bought and sold. In the process, you learned what factors influence demand and what factors influence supply. You learned how to:\n<ul><li>Describe and differentiate between the major economic systems<\/li>\n\t<li>Explain the determinants of demand<\/li>\n\t<li>Explain the determinants of supply<\/li>\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Define and graphically illustrate equilibrium price and quantity;&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15105,&quot;3&quot;:{&quot;1&quot;:0},&quot;11&quot;:0,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:2236962},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}\">Define and graphically illustrate market equilibrium, surplus, and shortage<\/span><\/li>\n<\/ul><h2>Synthesis<\/h2>\nYou'll remember that we started&nbsp;this module by considering changes in global coffee prices. Let's focus specifically on the drought of 2014.\n\n[caption id=\"attachment_5381\" align=\"aligncenter\" width=\"764\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/15205637\/Coffee-Prices.jpg\" rel=\"attachment wp-att-5381\"><img class=\"wp-image-5381 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205815\/Coffee-Prices.jpg\" alt=\"Between 2006 and 2016 coffee prices have increased 29%, but this difference is dwarfed by a spike in 2011. In that year, coffee prices rose almost 300% from the prior year.\" width=\"764\" height=\"394\"><\/a> <strong>Figure 1. Coffee Prices<\/strong>. Source: Trading Economics[\/caption]\n\nNow that we understand more about supply and demand, we can answer a few important questions: How does a drought impact supply? What impact will the quantity supplied have on the equilibrium price?\n\nIn 2014, the coffee regions of Brazil experienced a serious drought.&nbsp;The lack of rain in Brazil's&nbsp;coffee-growing region delayed the tree-flowering period, which spans October and November. When the trees don't flower, they don't produce coffee. Weather conditions also affect the pollination of coffee trees that have already flowered: Drought makes the blooms very delicate, which can cause them to fall off the tree. In 2014, the combined impact of these consequences&nbsp;meant&nbsp;a 13 percent drop in production from the previous year, to only 48 million 60-kilogram bags.[footnote]http:\/\/www.wallstreetdaily.com\/2014\/10\/21\/coffee-prices-brazil-drought\/[\/footnote]\n\n[caption id=\"attachment_6035\" align=\"aligncenter\" width=\"500\"]<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/06\/13144734\/1014_DryConditions.png\" rel=\"attachment wp-att-6035\"><img class=\"wp-image-6035 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205938\/1014_DryConditions.png\" alt=\"1014_DryConditions\" width=\"500\" height=\"323\"><\/a> <strong>Figure 2<\/strong>[\/caption]\n\nThese are poor natural conditions for coffee growers, and they cause a reduction in the supply. Graphically, such a reduction means a shift to the left in the supply curve (shown in Figure 3, below), indicating&nbsp;that suppliers are&nbsp;providing less coffee at every price.\n\n[caption id=\"attachment_6584\" align=\"aligncenter\" width=\"400\"]<img class=\"wp-image-6584\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205939\/PuttingItTogetherSupplyDemand-Fig3.png\" alt=\"Figure 3\" width=\"400\" height=\"404\"><strong>Figure 3<\/strong>[\/caption]\n\nWe can see that this shift in the supply curve will change the quantity supplied and the equilibrium price. At&nbsp;the original price (P1), the decrease in supply causes a shortage\u2014more people want coffee at that low price than the suppliers are able to provide. This drives up the price to a new equilibrium level (P2). In short, a leftward shift in the supply curve causes a movement up the demand curve, resulting in a lower equilibrium quantity (Q2) and a higher equilibrium price (P2).\n\nThis impact is clear in an economic model like the graph above, but does it really affect consumers? Absolutely!\u2014during this period, Starbucks raised its prices by 8 percent, and Folgers raised its prices by 9 percent. Coffee retailers were able to limit some of the impact of the rising coffee prices by drawing down their stock of green beans that were purchased before the drought&nbsp;and passing&nbsp;on some of the cost on to their customers as a higher price.[footnote]http:\/\/www.barrons.com\/articles\/rise-in-coffee-prices-nearing-peak-1444457073[\/footnote]\n\nIt's very common to see the impact&nbsp;of drought and other natural factors on supply, equilibrium quantity, and equilibrium price. The following video provides a brief example in the United States.\n\nhttps:\/\/www.youtube.com\/embed\/xBU8Z0Accds\n\nWill raising the price of coffee cause consumers to drink less coffee? How much&nbsp;of an impact does a price change have on demand? Now that you&nbsp;understand the basic principles of supply and demand, we're ready to take on these questions in the next module.","rendered":"<h2>Summary<\/h2>\n<p>The goal of this module was to explain how demand and supply for a good or service determine prices and quantities bought and sold. In the process, you learned what factors influence demand and what factors influence supply. You learned how to:<\/p>\n<ul>\n<li>Describe and differentiate between the major economic systems<\/li>\n<li>Explain the determinants of demand<\/li>\n<li>Explain the determinants of supply<\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Define and graphically illustrate equilibrium price and quantity;&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15105,&quot;3&quot;:{&quot;1&quot;:0},&quot;11&quot;:0,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:2236962},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}\">Define and graphically illustrate market equilibrium, surplus, and shortage<\/span><\/li>\n<\/ul>\n<h2>Synthesis<\/h2>\n<p>You&#8217;ll remember that we started&nbsp;this module by considering changes in global coffee prices. Let&#8217;s focus specifically on the drought of 2014.<\/p>\n<figure id=\"attachment_5381\" aria-describedby=\"caption-attachment-5381\" style=\"width: 764px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/05\/15205637\/Coffee-Prices.jpg\" rel=\"attachment wp-att-5381\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-5381 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205815\/Coffee-Prices.jpg\" alt=\"Between 2006 and 2016 coffee prices have increased 29%, but this difference is dwarfed by a spike in 2011. In that year, coffee prices rose almost 300% from the prior year.\" width=\"764\" height=\"394\" \/><\/a><figcaption id=\"caption-attachment-5381\" class=\"wp-caption-text\"><strong>Figure 1. Coffee Prices<\/strong>. Source: Trading Economics<\/figcaption><\/figure>\n<p>Now that we understand more about supply and demand, we can answer a few important questions: How does a drought impact supply? What impact will the quantity supplied have on the equilibrium price?<\/p>\n<p>In 2014, the coffee regions of Brazil experienced a serious drought.&nbsp;The lack of rain in Brazil&#8217;s&nbsp;coffee-growing region delayed the tree-flowering period, which spans October and November. When the trees don&#8217;t flower, they don&#8217;t produce coffee. Weather conditions also affect the pollination of coffee trees that have already flowered: Drought makes the blooms very delicate, which can cause them to fall off the tree. In 2014, the combined impact of these consequences&nbsp;meant&nbsp;a 13 percent drop in production from the previous year, to only 48 million 60-kilogram bags.<a class=\"footnote\" title=\"http:\/\/www.wallstreetdaily.com\/2014\/10\/21\/coffee-prices-brazil-drought\/\" id=\"return-footnote-170-1\" href=\"#footnote-170-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a><\/p>\n<figure id=\"attachment_6035\" aria-describedby=\"caption-attachment-6035\" style=\"width: 500px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1511\/2016\/06\/13144734\/1014_DryConditions.png\" rel=\"attachment wp-att-6035\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-6035 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205938\/1014_DryConditions.png\" alt=\"1014_DryConditions\" width=\"500\" height=\"323\" \/><\/a><figcaption id=\"caption-attachment-6035\" class=\"wp-caption-text\"><strong>Figure 2<\/strong><\/figcaption><\/figure>\n<p>These are poor natural conditions for coffee growers, and they cause a reduction in the supply. Graphically, such a reduction means a shift to the left in the supply curve (shown in Figure 3, below), indicating&nbsp;that suppliers are&nbsp;providing less coffee at every price.<\/p>\n<figure id=\"attachment_6584\" aria-describedby=\"caption-attachment-6584\" style=\"width: 400px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-6584\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/343\/2016\/07\/20205939\/PuttingItTogetherSupplyDemand-Fig3.png\" alt=\"Figure 3\" width=\"400\" height=\"404\" \/><figcaption id=\"caption-attachment-6584\" class=\"wp-caption-text\"><strong>Figure 3<\/strong><\/figcaption><\/figure>\n<p>We can see that this shift in the supply curve will change the quantity supplied and the equilibrium price. At&nbsp;the original price (P1), the decrease in supply causes a shortage\u2014more people want coffee at that low price than the suppliers are able to provide. This drives up the price to a new equilibrium level (P2). In short, a leftward shift in the supply curve causes a movement up the demand curve, resulting in a lower equilibrium quantity (Q2) and a higher equilibrium price (P2).<\/p>\n<p>This impact is clear in an economic model like the graph above, but does it really affect consumers? Absolutely!\u2014during this period, Starbucks raised its prices by 8 percent, and Folgers raised its prices by 9 percent. Coffee retailers were able to limit some of the impact of the rising coffee prices by drawing down their stock of green beans that were purchased before the drought&nbsp;and passing&nbsp;on some of the cost on to their customers as a higher price.<a class=\"footnote\" title=\"http:\/\/www.barrons.com\/articles\/rise-in-coffee-prices-nearing-peak-1444457073\" id=\"return-footnote-170-2\" href=\"#footnote-170-2\" aria-label=\"Footnote 2\"><sup class=\"footnote\">[2]<\/sup><\/a><\/p>\n<p>It&#8217;s very common to see the impact&nbsp;of drought and other natural factors on supply, equilibrium quantity, and equilibrium price. The following video provides a brief example in the United States.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Supply and Demand in the Beef Industry\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/xBU8Z0Accds?feature=oembed&#38;rel=0&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Will raising the price of coffee cause consumers to drink less coffee? How much&nbsp;of an impact does a price change have on demand? Now that you&nbsp;understand the basic principles of supply and demand, we&#8217;re ready to take on these questions in the next module.<\/p>\n<hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-170-1\">http:\/\/www.wallstreetdaily.com\/2014\/10\/21\/coffee-prices-brazil-drought\/ <a href=\"#return-footnote-170-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><li id=\"footnote-170-2\">http:\/\/www.barrons.com\/articles\/rise-in-coffee-prices-nearing-peak-1444457073 <a href=\"#return-footnote-170-2\" class=\"return-footnote\" aria-label=\"Return to footnote 2\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":32,"menu_order":29,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-170","chapter","type-chapter","status-publish","hentry"],"part":113,"_links":{"self":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/170","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/users\/32"}],"version-history":[{"count":1,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/170\/revisions"}],"predecessor-version":[{"id":171,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/170\/revisions\/171"}],"part":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/parts\/113"}],"metadata":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapters\/170\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/media?parent=170"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/pressbooks\/v2\/chapter-type?post=170"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/contributor?post=170"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accanderssenmicro\/wp-json\/wp\/v2\/license?post=170"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}