Transcript Supply and Demand

Supply and
Demand
IT’S TIME TO START SHIFTING ALL
OVER THE PLACE!
Demand
Supply and Demand: Crash Course
Economics #4
Understanding Demand Principles
Demand: the amount of a good or service that consumers are
willing and able to buy at all prices in a given period
Quantity Demanded: the amount of a good or service that
consumers are willing and able to buy at a specific price
Law of Demand: as prices increase, the quantity demanded
decreases and vice versa
Understanding Demand Principles
In order to be part of the demand for a product,
two things must be true:
1. You must be willing to buy the product
2. You must be able to buy the product
Demand and Price Interactions
Demand can be influenced by price.
● Affects the willingness to buy a product at different prices
Demand Schedule: Shows how prices influence demand by listing the
quantities of a good that one person will buy at different prices.
Demand Curve: Also shows how prices influence demand by graphing the
data listed in a demand schedule. As price changes, the quantity demanded
moves up or along the demand curve.
Demand
Schedule
Demand Curve
Demand schedule and demand curve
What Causes Changes in Demand
Many things can affect demand (both personal and market
demand)
Personal demand: the demand of just one person
Market demand: the sum of all the individual quantities
demanded in a market
Personal
schedule
Personal
schedule
Personal
schedule
Market Schedule
Personal
schedule
Market Demand Schedule
What Causes Changes in Demand
Demand Shifters: things that cause a change in demand for a good or service
1. Changes in income
2. Changes in preference of products
3. Changes in prices of related products
a. Complementary: product used with a good
b. Substitute: different product that does the same job (usually
cheaper option)
4. Changes in the number of consumers in the market
5. Changes in the expectations of consumers
Graphing the Changes in Demand
Changes in demand happen when quantities change at
ALL prices.
● Demand can increase or decrease
● Always affected by outside factors
Demand shift: when the curve moves
● NOT affected by price
● Demand decrease, demand curve shifts LEFT
● Demand increase, demand curve shifts RIGHT
Use this information to make a demand curve on a graph
Price of
Soda
# Bought by
Joe
# Bought by
Joe
# Bought by
Joe
Total Bought
$0.25
15
17
16
48
$0.50
11
15
10
36
$0.75
8
13
8
29
$1.00
5
9
7
21
$1.25
2
5
6
13
$1.50
1
3
2
6
1.50
1.25
1.00
.75
.50
.25
5
10
15
20
25
30
35
40
45
50
Demand and Supply Explained- Econ 2.1
Demand and Supply Explained (2 of 2) - Econ
2.2
Supply
Understanding Supply Principles
Supply: the amount of a good or service that producers are
willing and able to sell at all prices in a given period
Quantity Supplied: the amount of a good or service that
producers are willing and able to sell at a specific price
Law of Supply: as prices increase, the quantity supplied
increases and vice versa
Supply Schedule and Supply Curve
Supply Schedule and Supply Curve are just like demand. They just represent
the supply side of things.
Chart shows how many
tacos Jasmine is willing
and able to sell at each
listed price.
Graphing Market Supply
Market Supply: The sum of all producer’s willingness and ability to supply a
product.
Add up all 3 shops and
create a graph based on
the final numbers
Graph should take the sum of all 3 taco places and place them at the specific prices they
want to sell at
What Causes Supply to Change?
Supply Shifters: factors that can causes a change in the supply of a good or
service (very similar to demand shifters)
1. Changes in the cost of inputs
2. Changes in the number of suppliers
3. Changes in profit opportunities
4. Changes in technology
5. Changes in producer expectations
6. Changes in government policy
DECREASE in supply shifts the supply curve LEFT
INCREASES in supply shifts the supply curve RIGHT
When Demand and Supply Mix
Equilibrium: the point where
quantity supplied meets quantity
demanded
● quantity demanded =
quantity supplied
Equilibrium Price: the price at
which equilibrium is achieved
● aka “market-clearing-price”
Remember!!
The DEMAND line always runs
DOWNWARD
The SUPPLY line always runs
UPWARD
Warm up
1. What happens when equilibrium is achieved?
1. What does the law of supply state?
1. Does the supply curve have an upward slope or a downward slope?
1. List one supply shifter.
1. If supply decreases,which way does the supply curve shift?
Elasticity
Elasticity of Supply and Demand
Elasticity: The effect that PRICE has on QUANTITY demanded or supplied
when PRICE changes.
● Focus on price
● Elasticity allows economists to examine how responsive
consumers or producers are to price changes.
Inelastic: Price has a small effect on consumers. Products are usually
necessities.
Elastic: Price has a larger effect on consumers. Products are usually wants.
Usually go for a cheaper option if favorite product got too expensive.
Elasticity of Supply and Demand
Demand elasticity: How and why quantity demanded changes with price.
● consumers are highly sensitive to price change for elastic
goods
● consumers are insensitive to price change for inelastic
goods
Supply Elasticity: How and why quantity supplied changes with price.
● Elastic goods are flexible and can be produced quickly
● Inelastic goods take time and not flexible
Graphing Elasticity
Graphs can show the elasticity of a
product
● Steep slopes show
inelasticity
● Shallow slopes show
elasticity
Graph two points to find elasticity:
1. Initial price and quantity
2. NEW price and quantity
**Keep in mind that demand is a downward
sloping curve and supply is an upward sloping
curve**
Graphing Elasticity
Graphs can show the elasticity of a
product
● Steep slopes show
inelasticity
● Shallow slopes show
elasticity
Graph two points to find elasticity:
1. Initial price and quantity
2. NEW price and quantity
**Keep in mind that demand is a downward
sloping curve and supply is an upward sloping
curve**
Factors that Affect Demand Elasticity
Availability of substitutes: Products with more substitutes are more elastic.
Products with none or very few substitutes are more inelastic.
Price vs. income: Depending on your income, prices may or may not affect
you.
Necessity vs. luxury: Necessities are considered inelastic.
Time: Time is needed to adjust to a price change and can greatly affect
elasticity.
● Gas as more elastic product.
Factors that Affect Supply Elasticity
Availability of inputs: Difficulty in acquiring inputs can slow down production.
Mobility of inputs: How easily products can moved to where they are needed
for production
Storage capacity: Ability to store goods for production. Is the product easy to
store? Or is it difficult? Answers to those questions will affect elasticity.
Time: Time is needed to adjust to a price change and can greatly affect
elasticity. A product that was previously inelastic can become more elastic as
time goes on.
Prices
Prices Bring Markets to Balance
Market Price: The price that willing consumers pay to a willing producer for
the sale of a good or service.
Market Price is found by looking at consumer and producer interactions.
Consumers send signals to producers about whether a product is priced too
high or too low.
What Happens When the Price isn’t
“Right”?
Disequilibrium: Formed when
market price is set above or below
the equilibrium price
● Leads to excess
demand or excess
supply
Excess Supply – Supply exceeds
demand. Price is too high
Excess Demand – Demand
exceeds supply. Price too low
Think-Pair-Share
How do you think excess demand and excess supply can be solved?
First, think to yourself what those ways might be.
Then, pair with a buddy and share what your thoughts were.
Finally, be prepared to share with the class.
Excess Supply ---> Surplus
Excess surplus
To get back to equilibrium, price
would need to go down
Excess Demand ---> Shortages
Excess demand
To get back to equilibrium, price
would need to rise
How Price is Affected by Demand Shift
How Price is Affected by Supply Shift
What if Both Shift?
New
equilibrium is
found
Can have
numerous
outcomes
What do the Shifts Tell Us?
Think-Pair-Share
What do you think the shifts tell us (Hint: There’s 3 things)
● jot down your thoughts then share with a buddy
What do the Shifts Tell Us?
Changes in prices….
● Tells producers how much to produce
● Tells producers how much to charge
● Shows buyer’s interest (demand) for a product
Think-Pair-Share
When the government decides that prices are too high or too low, it gets
involved in 2 ways. What do you think those ways are?
Try and think of real world examples if you can.
What Happens when the Government is
Involved?
The government will get involved when it
believes prices are too high or too low.
Government affects prices in 2 ways:
1. Price Ceilings: setting a MAX
price
2. Price Floor: setting a
MINIMUM price
It can be difficult to stop gov’t
interference due to political influences
from those who it benefits
Black Markets
Black markets: an illegal market where goods are traded at prices or
quantities higher than those set by law.
They are usually created in response to government controls that can create
shortages or surpluses