Transcript File - Economics - Knoche

Supply and Demand
Introduction
1
Supply and Demand are the forces that make
markets and market economies work.
They determine the prices at which goods are
bought and sold,
and the quantities (amounts) at which they are
bought and sold.
2
Market -- anywhere where buyers and
sellers of a product get to meet.
3
Demand
• Quantity demanded (Qd) is a specific quantity
at a specific price, represented by a single point
on a demand curve.
• Demand (D) is the amount of a good or service
that consumers are willing and able to
purchase at all prices.
4
The law of demand – as the price of a good or
service increases, quantity demanded (Qd) for
that good or service will decrease.
This assumes the rule of ceteris paribus meaning
“all other things being equal”
What determines the quantity that an individual
will demand?
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Demand Schedule
Price
Quantity
$1
50
$2
$3
$4
$5
$6
$7
45
40
35
30
25
20
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Demand Graph
7
Demand Graph
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If price changes, quantity demanded (Qd) will change.
It is a movement along the demand curve.
For example…If price goes from $2 to $7…what happens?
Price
Quantity
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But wait… what could cause the entire curve to shift
left
or right
so that every point on the line would change?
Price
Quantity
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Determinants of Demand
(Demand curve shifters)
• There are six non-price factors that shift the
entire demand curve left or right.
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Demand Shifts
What do they look like?
More Demand
Price
When Qd rises at each
and every price, then
the whole curve (D)
shifts to the right.
D
D1
Quantity
12
Demand Shifts
Less Demand
Price
When Qd drops at each
and every price, then
the whole curve (D)
shifts to the left.
D1
D
Quantity
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1. Income
• If income levels changes then overall demand
will change.
“Mo money, mo problems”
- BiggieSmalls
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• Direct relationship … If income rises and
demand rises, then that good is considered a
normal good.
• Most economic goods that we measure are
normal goods.
• Examples… music purchases, gasoline,
restaurant meals, steak, cars, most everything
15
• Indirect relationship… If income rises and
demand falls, then that item is an
inferior good.
• For example, bus rides, fast food, hot dogs,
ramen noodles, mac and cheese, chicken
noodle soup, tuna fish
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2. Prices of substitute goods.
• How are these goods related?…we use them
either/or. One can be easily substituted for
the other such as…
• Butter or margarine
• Mayonnaise or salad dressing
• Sweaters or jackets
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• So, lets use butter and margarine
• When the price of butter goes up, the
demand for margarine also goes up.
• This is a direct relationship between the price
of one good and the demand for another.
• Why?
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Butter graph
Price
Margarine graph
Price
4.00
2.00
D
Qd
D
Quantity
20
40
Price butter goes up from $2.00 to $4.00
Qd of butter goes?
Movement on the curve.
D1
Quantity
Price of margarine does not change.
Demand for margarine goes?
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One more time…
• Price of butter rises…quantity (Qd) of butter
demanded falls. (law of demand)
• The demand for margarine rises, because due
to the law of demand people are buying less
butter and are substituting more margarine.
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3. Complementary Goods
• These are goods that we normally use
together.
• As the price of one goes up, the demand for
the other goes down.
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• So when the price of one of these goes up, the
quantity demanded of that good falls, (law of demand)
and the demand for the complementary good falls.
(Indirect relationship)
• For example when the price of peanut butter goes up,
people use less, (that’s a movement along an existing
demand curve for peanut butter and illustrates the law
of demand. )
• But since we use peanut butter and jelly together,
when the price of peanut butter goes up, we demand
less jelly because we are eating fewer peanut butter
and jelly sandwiches. PB & J are complements.
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PB Graph
Jelly Graph
Price
Price
left
less
$3
$2
D1
D
Qd
Price Peanut Butter
Qd of peanut butter
D
Qd
Price Jelly stays constant
Demand for Jelly shifts to the
left
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4. Tastes and Preferences
• When consumers tastes change, the demand
curve for that product will move.
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Everyone wants one!
3-D
printer
Price
D
D1
Qd
25
Nobody wants one of those!
Price
D1
D
Qd
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5. Expectations of the future
• Brings all the other reasons into play.
• If you expect the item to be more expensive in
the future you may buy _ _ _ _ now.
• If you expect that prices of homes will keep
falling, would you buy a home now? NO
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More Future Expectations
• If you expect your income to go up in the
future you may buy _ _ _ _ now.
• If you expect your income to fall (lose your
job) what happens to your demand now?
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Positive Future Expectations
Price
D
D1
Qd
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Negative Future Expectations
Price
D1
D
Qd
30
6. Number of Buyers in a market
• Simple…more buyers, means more buyers at
each and every price, therefore the demand
curve will move, to the right.
• Fewer buyers means that demand moves to
the left, toward the origin, left is always less.
Example: In the summer in Va. Beach, there is an
increase in the number of tourists (buyers).
What happens for the demand for hotel rooms in
June, July, & August?
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More Purchasers
Price
D
D1
Qd
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Fewer Purchasers
Price
D1
D
Qd
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Practice
Due to technical problems, the price of iPads doubles.
What happens to the demand curve for Samsung tablets?
What demand determinate tells you that?
Price
D
Qd
34
Practice
You just got a new job making $20,000 more a year than you used to.
What happens to the demand curve for expensive clothes?
What demand determinate tells you that?
Price
D
Qd
35
Practice
In June, the Bonnaroo Music and Arts Festival will be held in Nashville,
TN. What happens to the demand curve for fast food in Nashville during
the festival? What happens after the festival?
What demand determinate tells you that?
Price
D
Qd
36
Practice
Disease has killed many syrup producing trees in the U.S
causing syrup prices to rise dramatically.
What happens to the demand curve for pancake batter?
What demand determinate tells you that?
Price
D
Qd
37
Practice
Ray Rice was convicted of domestic abuse and banned from the NFL.
What happened to the demand curve for Ray Rice jerseys?
What demand determinate tells you that?
Price
D
Qd
38
Practice
Congress is considering legislation that would fine any state selling
recreational marijuana $1,000,000 per day starting in 2016.
What happens to the demand curve for legal marijuana in Colorado?
What demand determinate tells you that?
Price
D
Qd
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