{"id":5915,"date":"2016-07-19T18:00:40","date_gmt":"2016-07-19T18:00:40","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/macroeconomics\/?post_type=chapter&#038;p=5915"},"modified":"2016-07-19T18:00:40","modified_gmt":"2016-07-19T18:00:40","slug":"putting-it-together-supply-and-demand","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/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\u00a0this 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\/342\/2016\/07\/19174208\/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.\u00a0The lack of rain in Brazil's\u00a0coffee-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\u00a0meant\u00a0a 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\/342\/2016\/07\/19174441\/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\u00a0that suppliers are\u00a0providing 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\/342\/2016\/07\/19174444\/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\u00a0the 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\u00a0and passing\u00a0on 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\u00a0of 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\u00a0of an impact does a price change have on demand? Now that you\u00a0understand 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\u00a0this module by considering changes in global coffee prices. Let&#8217;s focus specifically on the drought of 2014.<\/p>\n<div id=\"attachment_5381\" style=\"width: 774px\" 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\" aria-describedby=\"caption-attachment-5381\" class=\"wp-image-5381 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/342\/2016\/07\/19174208\/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><\/p>\n<p id=\"caption-attachment-5381\" class=\"wp-caption-text\"><strong>Figure 1. Coffee Prices<\/strong>. Source: Trading Economics<\/p>\n<\/div>\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.\u00a0The lack of rain in Brazil&#8217;s\u00a0coffee-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\u00a0meant\u00a0a 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-5915-1\" href=\"#footnote-5915-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a><\/p>\n<div id=\"attachment_6035\" style=\"width: 510px\" 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\" aria-describedby=\"caption-attachment-6035\" class=\"wp-image-6035 size-full\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/342\/2016\/07\/19174441\/1014_DryConditions.png\" alt=\"1014_DryConditions\" width=\"500\" height=\"323\" \/><\/a><\/p>\n<p id=\"caption-attachment-6035\" class=\"wp-caption-text\"><strong>Figure 2<\/strong><\/p>\n<\/div>\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\u00a0that suppliers are\u00a0providing less coffee at every price.<\/p>\n<div id=\"attachment_6584\" style=\"width: 410px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-6584\" class=\"wp-image-6584\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/342\/2016\/07\/19174444\/PuttingItTogetherSupplyDemand-Fig3.png\" alt=\"Figure 3\" width=\"400\" height=\"404\" \/><\/p>\n<p id=\"caption-attachment-6584\" class=\"wp-caption-text\"><strong>Figure 3<\/strong><\/p>\n<\/div>\n<p>We can see that this shift in the supply curve will change the quantity supplied and the equilibrium price. At\u00a0the 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\u00a0and passing\u00a0on 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-5915-2\" href=\"#footnote-5915-2\" aria-label=\"Footnote 2\"><sup class=\"footnote\">[2]<\/sup><\/a><\/p>\n<p>It&#8217;s very common to see the impact\u00a0of 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\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Will raising the price of coffee cause consumers to drink less coffee? How much\u00a0of an impact does a price change have on demand? Now that you\u00a0understand the basic principles of supply and demand, we&#8217;re ready to take on these questions in the next module.<\/p>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-5915\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Putting It Together: Supply and Demand. <strong>Authored by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Supply and Demand in the Beef Industry. <strong>Provided by<\/strong>: BBC. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/embed\/xBU8Z0Accds\">https:\/\/www.youtube.com\/embed\/xBU8Z0Accds<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section><hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-5915-1\">http:\/\/www.wallstreetdaily.com\/2014\/10\/21\/coffee-prices-brazil-drought\/ <a href=\"#return-footnote-5915-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><li id=\"footnote-5915-2\">http:\/\/www.barrons.com\/articles\/rise-in-coffee-prices-nearing-peak-1444457073 <a href=\"#return-footnote-5915-2\" class=\"return-footnote\" aria-label=\"Return to footnote 2\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":18,"menu_order":29,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Putting It Together: Supply and Demand\",\"author\":\"Lumen Learning\",\"organization\":\"\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Supply and Demand in the Beef Industry\",\"author\":\"\",\"organization\":\"BBC\",\"url\":\"https:\/\/www.youtube.com\/embed\/xBU8Z0Accds\",\"project\":\"\",\"license\":\"cc-by-nc-nd\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-5915","chapter","type-chapter","status-publish","hentry"],"part":5850,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/pressbooks\/v2\/chapters\/5915","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/wp\/v2\/users\/18"}],"version-history":[{"count":1,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/pressbooks\/v2\/chapters\/5915\/revisions"}],"predecessor-version":[{"id":5988,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/pressbooks\/v2\/chapters\/5915\/revisions\/5988"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/pressbooks\/v2\/parts\/5850"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/pressbooks\/v2\/chapters\/5915\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/wp\/v2\/media?parent=5915"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/pressbooks\/v2\/chapter-type?post=5915"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/wp\/v2\/contributor?post=5915"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/wp-json\/wp\/v2\/license?post=5915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}