Double Shifts in Supply and Demand

What happens to the

equilibrium price and quantity of ice cream if:

1. Science proves that ice cream cures

depression ☺

2. 10 million cows die. �

We can say for certain that the price increased but since the change in equilibrium quantity is dependant on how our curves are drawn, the change in equilibrium quantity is ambiguous.

Double Shifts in Supply and Demand

1. Suppose the demand curve for gasoline shifts to the right, as global demand from India and China increases. Suppose also that new discoveries of oil enable an increase in the supply of gasoline to be sold on the market. Assuming that nothing else changes, what is the effect on the equilibrium price quantity of gasoline?

2. The price of a round-trip ticket to Paris on Air France falls by more than $200 after the end of school vacation in Sept. This happens despite the fact that generally worsening weather increases the cost of operating flights to Paris, and Air France therefore reduces the number of flights at any given price.

S/D Shifts CONTINUED:

What is the effect on price and quantity?

Effect on Price Effect on Quantity

Demand increases

Demand decreases

Supply increase

Supply decreases

Demand decreases and

supply increases

Both supply and

demand decrease

Demand increases and

supply decreases

Both supply and

demand increase

50

Simultaneous Shifts in S/D

51

S/D Shifts:

What is the effect on price and quantity?

Effect on Price Effect on Quantity

Demand increases Up Up

Demand decreases Down Down

Supply increase Down Up

Supply decreases Up Down

Demand decreases and

supply increases

Down Ambiguous

Both supply and demand

decrease

Ambiguous Down

Demand increases and

supply decreases

Up Ambiguous

Both supply and demand

increase

Ambiguous Up

52

� Uber is a technology company that has developed a software that allows anyone to request a ride via mobile app, text message, or the web. Drivers arrive curbside in just minutes, you can track the arrival of your ride, you'll receive a text message when your driver arrives, the credit card on file is charged after your ride, and you will receive an email receipt detailing your trip.

� http://www.businessinsider.com/uber-new-years-

eve-surge-pricing-2014-1

Dynamic Pricing – prices

reflect supply and demand

�demand < supply = low prices

�demand > supply = high prices (surge pricing)

� http://www.businessinsider.com/uber-new-years-eve-surge-pricing-2014-1

� http://www.npr.org/blogs/money/2014/01/24/265396928/when-a-65-cab-ride-costs-192

Graph supply and demand for

A. Uber during regular hours/day

B. ∆ Demand or ∆ Quantity Demanded during a snow storm

C. ∆ Supply or ∆ Quantity Supplied during surge pricing

D. After a Twitter rant

What happens to the price in each scenario?

Do you agree or disagree with the following statement:

Dynamic pricing benefits customers, Uber,

Uber drivers and the economy.

http://www.npr.org/blogs/money/2014/02/07/273060341/episode-516-why-paying-192-for-a-5-mile-car-

ride-may-be-rational

� 22 minutes

‘s Pricing Model

Planet Money Episode #516Dynamic Pricing

PROs CONs

Do you agree or disagree with the following statement:

Dynamic pricing benefits customers, Uber, Uber drivers and the

economy.Explain.

UBER DEBATE

Do you agree or disagree with the following statement:

Dynamic pricing benefits customers, Uber, Uber drivers and the economy.

� Extra credit points (sum of speaking students – NOT

contributions) to be divided up between speaking members of the winning team. You must have completed the HW to earn

the EC.

� Teams will be judged according to A-HA! contributions. No personal attacks (no credit for bad behavior!)