6.7 Supply and Demand
Download
Report
Transcript 6.7 Supply and Demand
WarmUp
How would you describe supply and
demand?
Unit II: How Markets Work
Part I – Supply and Demand
Demand
The desire, willingness and ability to
buy a good or service
Affective Demand
Must want to buy
Must be willing to buy
Must have the resources to buy
What is market demand?
The total amount of demand created by
all consumers for a product
Demand Schedule
A table that lists the various quantities
of a product that will be bought at
different prices
$50
$40
$30
$20
$10
$5
Demand Curve
A graph that shows the amount of a
product that will be bought at all
possible prices
Direction of the Demand Curve
Downward Slope
What does the law of demand
state?
As price goes UP demand goes DOWN
and visa versa
What does utility refer to?
Satisfaction
Diminishing Marginal Utility
Principle that additional satisfaction
goes down as we consume more of a
product
Determinants of Demand
changes in:
Buyers (#of) – changes in population
Income – people earn more they spend more
Tastes – change in popularity or fads
Expectations – feelings of the future
Related goods
Substitutes – goods that can replace others
Compliments – goods that go along with another
Decrease in demand at every price
will produce a Left shift in demand
curve
An increase in demand at every
price will produce a right shift in
demand curve
Demand Elasticity
How much demand for a product is
affected by a change in price
Factors affecting elasticity
Percentage of Income
Availability of substitutes
Necessity or Luxury
Length of time
Warmup
What is the law of demand?
What is supply?
The various amounts of a good or
service that producers will supply at
different prices
The Law of Supply
Suppliers will generally offer more for
sale at higher prices and less at lower
prices.
What does a Supply Schedule
illustrate?
How much will be supplied at different
prices
Supply Schedule for Video Games
Price Per Video Game
Quantity Supplied
$50
200
$40
190
$30
170
$20
130
$10
100
$05
10
What does a supply curve
illustrate?
The amount of a good or service that
will be supplied at different prices
In what direction does the supply
curve slope reading from left to
right?
Upward
What can cause a shift in supply at
every price?
The Cost of Resources
The materials used to produce
Productivity
How efficient the work force is
Technology
The methods used to make goods and
services
Then….
…..and Now
Government Policies
Gov regulations increase costs of
production
Taxes
Higher taxes = higher costs
Lower taxes = lower costs
Subsidies
Government payment to help do
something (decreases costs)
Expectations
What owners believe demand will be
Number of Suppliers
More suppliers = more supply
Less suppliers = less supply
Shift in Supply
Price of Video
Games
$50
Original Q
Supplied
200
Change in Q
Supplied
300
$40
190
290
$30
170
270
$20
130
230
$10
100
200
$05
10
110
When market supply increases at
every price the supply curve shifts
to the
Right
Now suppose the government
increases taxes on the industry.
It will decrease
Label this on the graph assuming that 100
less will supplied label it S3
What does supply elasticity mean?
How much supply is affected by a
change in price
Elastic Supply – quantity changes a
great deal when price changes
Inelastic Supply – quantity changes
little when price changes
What affects the elasticity of
supply?
How quickly a company can change
how much it produces
Equilibrium Price
The price at which
the amount
demanded is equal
to the amount
supplied
Pe
Qe
What is the equilibrium price of
video games in our market?
$25
What is a surplus?
When there is more supply than
demand
What is a shortage?
When there is greater demand than
supply
If price was set at $40 in our video
game market what would exist?
Surplus
What about $10?
Shortage
What impact will a shortage have
on price?
Prices will go up
Surplus?
Prices go down
What are price controls?
When the government sets the price of
goods and services because they feel
forces of supply and demand are unfair
Price Ceiling
Maximum price that can be charged set
by government
Example = Rent Control
Price Floor
Government set minimum price
Example = minimum wage
Price as Signals
Determine What to produce by telling
producers what they can make a profit
off of
Determine How to produce – least
costly means more profit
Determines Who gets what
Advantages of Price
Prices are Neutral – they do not favor
producer or consumer
Prices are Flexible – they can adjust to
changes in the market quickly
Prices provide Freedom of Choice – a
variety of products at different prices
allows consumers to choose
Prices are Familiar – they are easily
understood