Week 1 — Supply, demand, and elasticity
What moves my price and quantity — and by how much?
This week you will
- Say which curve a real-world shock moved, and what it did to price and quantity.
- Compute elasticity from two price points.
- Decide whether raising your company’s price would raise or lower its revenue.
1. Watch
Work through the four concept pages in this order. Each page has a short video at the bottom.
| # | Concept page | Textbook |
|---|---|---|
| 1 | Demand and supply: shifts versus movements | P&B 2.1–2.2 |
| 2 | Market equilibrium and shocks | P&B 2.3–2.5 (skip 2.6) |
| 3 | Price elasticity of demand | P&B 3.1 |
| 4 | Elasticity and revenue | P&B 3.1 (skip 3.2–3.5) |
2. Try
On each concept page, do the “Try it” box. Then try this company version.
A student who picked a ride-hailing company sees the same airport trip priced at $28 on a rainy Friday evening and $19 on a dry Tuesday morning.
- Which curve moved on Friday? (Demand, to the right: more riders, the same drivers at first.)
- What happened to price and quantity?
- What must the company believe about riders’ elasticity at 6 pm on a rainy Friday to raise the price that much?
For your own company, find two observed prices and volumes and put them in the two-point calculator. That gives you an elasticity for Playbook P1.
Class experiment
Anonymous and not graded. The whole class answers one short question; the results appear when it closes.
3. Check yourself
Answer the “Check yourself” questions at the end of each concept page. They are not graded. They tell you if you are ready for the homework.
4. Do in Moodle
- Company sign-up.
- Practice Homework U1 — concept questions, plus Excel Lab items with
Lab_U1.xlsx. - Playbook Page P0 (bonus) and P1 Demand Snapshot.
- Two peer comments.
- Prediction slip (bonus).
- Linear demand: Q = a + b·P, with b = (Q₂ − Q₁) ÷ (P₂ − P₁) and a = Q₁ − b·P₁
- Equilibrium with supply Q = s·P + c: P* = (a − c) ÷ (s − b), Q* = s·P* + c
- Arc elasticity: [(Q₂ − Q₁) ÷ average Q] ÷ [(P₂ − P₁) ÷ average P]
- Revenue rule: inelastic → raise price, revenue up; elastic → raise price, revenue down; %ΔR ≈ %ΔP × (1 − |ε|)
Moving both curves · saying “demand fell” when your own price rose · elasticity upside down (quantity goes on top) · forgetting the midpoint · “people love our product” offered as evidence of inelastic demand.
Due dates and points are in Moodle.