Transcript Supply and Demand

Supply and Demand
1.2
Market Economy
 How
are prices
determined in a
“market economy”?
 What
does the term
“market economy”
mean?
Supply and Demand

What does the word “demand” mean?

Let’s graph an example of demand:

It’s the summer, it’s hot and you’re thirsty. You come across a lemonade
stand. How many cups would you buy if the price was $1 a cup? (Let’s
assume the lemonade is deliciously refreshing.)

For $0.50 a cup?

For $2 a cup?

For $3 a cup?

For $5 a cup?

For $10 a cup?

For $0.10 a cup?
Supply and Demand
Check for understanding:
 As
quantity demanded increases, how is price
affected?
 As
price increases, how is the quantity demanded
affected?
Supply and Demand

What does the word “supply” mean?

Let’s graph an example of supply:

You are running a lemonade stand. How many cups would you make if
you could sell it for $1 a cup? (Let’s assume that it costs you $0.25 to
make a cup.)

For $0.50 a cup?

For $2 a cup?

For $3 a cup?

For $5 a cup?

For $10 a cup?

For $0.10 a cup?
Supply and Demand
Check for understanding:
 As
quantity demanded increases, how is price
affected?
 As
price increases, how is the quantity demanded
affected?
Market Equilibrium
Market Equilibrium

Therefore, how does demand affect prices?

Imagine this scenario: It is the hottest day of the year,
you haven’t had anything to drink, and you spent the
whole day lying by your friend’s pool. On your way
home, you come across the same lemonade stand.

How would prices compare to the original situation?
Why?
Market Equilibrium

Imagine this scenario: It is a brisk autumn evening,
and you spent the whole day closing up your friend’s
pool. Her mom baked warm cookies, and served
pumpkin hot chocolate. On your way home, you come
across the same lemonade stand.

How would prices compare to the original situation?
Why?
Market Equilibrium

Supply can change prices too.

How so?

Imagine this scenario: The mall only has one pair of the
gold-plated Beats By Dre (TM) left and they are backordered from the warehouse (plus, your internet
connection is down due to the snow).

How would prices compare to if the mall had a new
shipment ready?


Scarcity
This is the concept of scarcity.
How would we define it?
Price of Goods

What other factors can influence prices?

One of the biggest: INFLATION

What does “inflation” mean?

Why does inflation occur?
Examples of Inflation
1998
2014

Cost of a new home: $181,900

Cost of a new home: $188,900

Cost of a new car:

Cost of a new car:

Cost of a first-class stamp: $0.32

Cost of a first-class stamp: $0.49

Median Household Income:
$38,568

Median Household Income:
$50,230

Cost of a gallon of regular gas:
$1.06

Cost of a gallon of regular gas:
$1.93

Cost of a dozen eggs:
$1.09

Cost of a dozen eggs:

Cost of a gallon of Milk: $3.16

Cost of a gallon of Milk: $3.65
$17,200
$32,069
$2.23
Pretend I’m giving you all a $500 gift. Make a list
(including prices) of everything you would do (not
just buy) with that amount.
Be sure to keep a running total, so that you don’t
go over your gift amount.
Wants vs. Needs
WANTS
NEEDS

What are “wants”?

What are “needs”?

What are some
examples of “wants”?

What are some
examples of “needs”?
Now, go through your list you made from the last
slide, and write a “W” for want, or a “N” for needs
next to every item of your list. When finished,
exchange with a neighbor and check their work.
Wants
Needs
Utility

an economics term used to describe people’s tastes
and preferences
 “how
much enjoyment someone gets out of
consuming a good”

Why do some people buy 3 glasses of lemonade and
others buy only 1 at a price of $1 a cup?
Diminishing Utility

Why do you buy 2 cups of lemonade at $0.50 a cup,
but not 50 cups of lemonade at $0.02 a cup?

This is Diminishing Utility
 “utility
goes down for each time”
Closing Time

How much money is enough?

Using this concept, do you think that money increases
happiness, or simply decreases unhappiness?