You will draw a Supply and Demand diagram, and then do some additional things. Please follow the directions carefully.

To begin, you will make some decisions, by answering for yourself these questions:

What is the product (good) or service? What is the time period over which we are measuring, e.g., units sold per day, week, or month (don't go beyond month)? What is the geographic area we are looking at? Common choices might be: the city of ..., the county of..., the state of..., the U.S. , the world. What is the range of possible prices you want to include? This could be from zero to some higher number. What is the range of possible quantities you want to cover? This will be a function of the product, the population, and the time period.

These parameters can be made up, but should bear some connection to reality.

EXAMPLE

My product is plain white athletic socks, one pair. My time frame is one week - so the number of pairs sold in a week. My geographic area is the whole U.S., - so the number of pairs sold in one week in the U.S. My price range will be from zero to $15 - So $15 is the highest we would ever expect to see price go. My quantity range will be from zero to 100 million pairs - so 100 million is the highest quantity we would ever imagine being sold in the U.S. in one week.

Now, with all these questions, please draw your own Supply and Demand diagram.

You may draw it by hand, or use a tool such as Word or PowerPoint. Please include the following:

The price axis with a label and a scale showing various number The quantity axis with a label and a scale showing various numbers The Supply curve with a label The Demand curve with a label The equilibrium price, also labeled The equilibrium quantity, also labeled

Next, please imagine a scenario in which Demand either increases or decreases.

Explain why the change happened, i.e, what caused the change. Remember that this will be some external cause or influence that affects Demand only.

One example involving socks might be: a movie star is seen wearing white socks with a tuxedo at the Oscars, and it gets a lot of attention. All of a sudden there is a trend in which many people begin wearing white socks with suits, thus increasing the demand for white socks.

Now draw an updated Supply and Demand diagram, showing the shift in Demand.

Next, going back to the original condition, please imagine a scenario in which Supply either increases or decreases.

Explain why the change happened, i.e., what caused the change. Remember that this will be some external cause or influence that affects Demand only. This often involves some portion of production.

One example involving socks might be: weather conditions in cotton producing regions of the world are harsh and unforgiving. As a result, the cotton crop is much smaller this year. This means a decrease in supply for white socks, as well as many other clothing items.

Now draw an updated Supply and Demand diagram, showing the shift in Supply.