Transcript Demand & Supply

Demand & Supply
The Basics
IV. Demand
A. Law of Demand
B. Demand Curve
C. Determinants of Demand
D. Change in Demand
E. Change in Quantity Demanded
Law of Demand
• What happens:
– If the price of a good goes up, the quantity demanded goes down.
– If the price of a good goes down, the quantity demanded goes up.
– This is an inverse relationship
• What causes it to happen:
– Income effect:
• lower the price, more ppl can afford it (you’ve just increased quantity
demanded)
– Substitution effect:
• Lower chicken prices relative to pork, beef, lamb, fish, etc. means that ppl will
substitute chicken for other meats. (increased quantity demanded)
Demand Curve
Price per Bushel
Quantity demanded per week
$5
10
$4
20
$3
35
$2
55
$1
80
Plot this and you get a demand curve…
Change in Demand
(∆D)
• These are what cause a demand curve to shift right or
left
• Determinants of Demand:
– Consumers’ tastes (preferences)
– Number of consumers in a market
– Consumers’ incomes
• Normal goods (aka superior goods)
• Inferior goods
– Price of related goods
• Substitute goods
• Complementary goods
• Unrelated goods
– Consumer expectations about future prices & incomes
Changes in Quantity Demanded
(∆QD)
• Don’t confuse w/ a Change in Demand
– Changes in demand shift the demand curve left or
right.
• Changes in Quantity Demanded just means
going up or down the demand curve
– A movement from one point to another point on a
fixed demand curve
∆QD
∆D
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Quantity Demanded
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Quantity Demanded
Draw the following ∆D or ∆QD :
• Price of gas rises from $3.50 a gallon to $5.50.
• Price of steak becomes cheaper.
• Price of hamburgers at McDonald’s goes up.
• Price of hamburgers at McDonald’s goes up. Draw
how this will impact Whataburger.
• Price of a movie ticket goes up to $16. Draw how
this will effect the sale of popcorn in theaters.
Elastic vs. Inelastic Demand
Describes how much quantity demanded will change when price changes
• if it changes a lot, then the demand is considered elastic
• if it doesn’t change much, then the demand is inelastic
Elastic
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Inelastic
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Quantity Demanded
Quantity Demanded
Ch 5
Supply
The Basics
V. Supply
A. Law of Supply
B. Supply Curve
C. Determinants of Supply
D. Change in Quantity Supplied
E. Change in Supply
Law of Supply
• Simple:
– If the price rises, suppliers will want to sell more.
(increase the quantity supplied)
– If the price falls, suppliers will want to sell less.
(decrease the quantity supplied)
Supply Curve
Price per Bushel
Quantity supplied per week
$5
80
$4
70
$3
55
$2
30
$1
20
Plot this and you get a supply curve…
Changes in Quantity Supplied
(∆QS)
• Similar to Change in Quantity Demanded
(∆QD)
So what might cause a change in supply
(∆S)?
• Imagine you and your group members are partners in a business.
• Quickly decide what you are selling & a name for your business.
• List at least five things you will need to produce your good/service.
– Such as the type of materials, equipment, labor, etc. do you
need.
• Who are your direct competitors?
Changes in Supply
• Determinants of Supply
– Besides the price of a good, there are other factors
that influence the quantity supplied
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Resource prices
Technology
Taxes and subsidies
Prices of other goods
– Substitution of production
• Price expectation
• Number of sellers in the market
• These cause the whole line to shift left or right
A Change in Supply
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A Change in the Quantity Supplied
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Quantity supplied
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A
Quantity supplied