Transcript WHAT IS SUPPLY?

Demand
and
Supply
Starter Key Terms
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Demand
Demand Schedule
Demand Curve
Law of Demand
Market Demand
Utility
Marginal Utility
Substitute
Complement
Demand Elasticity
Price Floor
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Supply
Law of Supply
Supply Schedule
Supply Curve
Profit
Market Supply
Subsidy
Supply Elasticity
Surplus
Equilibrium price
Price Ceiling
What Is Demand?
The desire, willingness and ability
to buy a good or service
For Demand to Exist:
 You must want or need a good or service
 You must be willing to buy the good or
service
 You must have the resources available to
buy it
Demand Schedule v. Demand Curve
 Demand schedule
 Table that shows
various quantities of a
product or service that
an individual is willing
to buy over a range of
possible prices
 Individual Demand
Chart pg 571
 Demand curve
 Graph that shows the
amount of a product that
would be brought at all
possible price.
 Vertical is price
 Horizontal is quantity
Law of Demand
 The quantity of an item demanded and price
move in opposite directions.
 INVERSELY RELATED
 Price is high then demand will be ?
 Price is low then demand will be ?
 Typically you will buy more of an item at a lower price.
Individual v Market Demand
 What you want and
are willing to pay and
resources to pay for it
(individual)
 Total of what all
consumers want and
are willing to pay for it
and have resources
to pay for it
 Companies hope to
sell to as many
people as possible so
this is what they look
at
Demand Illustrated:
 Knowledge of demand is essential to
understand how a market economy works
 People act in their own best interest
 Would you buy a concrete company near
the beach today? Why? Or Why not?
Diminishing Utility:
 Almost everything that we buy provides utility
 Utility: pleasure or usefulness or satisfaction we
get from using a product
 Movie
 Candy
 This is diminishing marginal utility: our marginal
utility tends to go down as more units are
consumed of it
 Helps explain the demand curve and why it
slopes downward
Shift in Demand curve
 Shift to right: demand increases
 Shift to left: demand decreases
Change in Demand
• Market demand can change when more
consumers enter the market; when consumers
income changes, tastes or styles change, and
expectations change and when prices of related
goods change.
• A graph of a market demand curve can show
these changes. When demand goes down,
people are willing to buy fewer items at all
possible prices. In this case, the curve shifts to
the left. When demands goes up, the curve
shifts to the right. People are willing to buy
more of the item at any given price.
Change in Demand Continued
• Competing products are called substitutes
because consumers can use one in place of
the other. A change in the price of one
good causes the demand for its substitute to
move in the same direction.
• Complements are products that are used
together. The demand for one moves in the
opposite direction as the price of the other.
Factors That Affect Demand
 Demand for any product is variable over time for
several reason and this affects your demand for
it.
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Change in number of consumers (population)
Change in consumer’s income (recession)
Change in consumer’s taste (preference for)
Change is consumer’s expectations (future)
Change in substitutes (competing products)
Change in complement (complementing products)
Elasticity of Demand
• When prices rise, we know that quantity demanded will
go down, but we don’t know by how much. Demand
elasticity is the extent to which a change in price causes
a change in the quantity demanded for a product.
• For some goods and services, demand is elastic. Each
change in price causes a relatively larger percentage
change in quantity demanded. This is, when the price of
a product changes a little, the quantity demanded
change a lot.
Elasticity Continued
• Demand for a good or service tends to be
elastic if it has an attractive substitute.
Demand also tends to be elastic when the
purchase can be postponed.
• For other goods and service, demand is
inelastic. Price changes have little effect
on the quantity demanded.
• Demand for goods with few or no
substitutes trends to be inelastic.
Elasticity of Demand
 The extent to which a change in price causes a
change in the quantity demanded.
 Elastic demand:
 Change in cost causes a relatively larger percentage
change in quantity demanded.
 Substitutes
 Expensive items have elastic demand
 Inelastic demand:
 Price change has little effect on demand
 Few substitutes
What is
Supply?
WHAT IS SUPPLY?
REFERS TO THE VARIOUS QUANTITIES
OF A GOOD OR SERVICE THAT
PRODUCERS ARE WILLING TO SELL AT
ALL POSSIBLE MARKET PRICES
LAW OF SUPPLY
• PRINCIPLE THAT SUPPLIERS WILL
NORMALLY OFFER MORE FOR SALE
AT A HIGHER PRICE AND LESS FOR
SALE AT A LOWER PRICE
• PRICE AND SUPPLY DIRECTLY
RELATED TO EACH OTHER
• AS PRICE GOES UP SO DOES SUPPY
• AS PRICE GOES DOWN SO DOES
SUPPLY
SUPPLY SCHEDULE VS CURVE
• SUPPLY SCHEDULE
• NUMERICAL CHART
THAT ILLUSTRATES
THE PRICE AND
WHAT QUANTITY
WILL BE SUPPLIED
AT THAT PRICE
• SUPPLY CURVE
• GRAPH THAT SHOWS
THE AMOUNT OF A
PRODUCT THAT
WOULD BE SUPPLIED
AT ALL POSSIBLE
PRICES
THE PROFIT MOTIVE
• PROFIT IS THE MONEY A BUSINESS
RECEIVES FOR ITS PRODUCTS OR
SERVICES OVER AND ABOVE ITS
COST TO MAKE IT
• PROFIT MOTIVE IS THE IDEA THAT
BUSINESS WANT TO MAKE A PROFIT
THEREFORE THEY SELL TO DO SO
GRAPHING MARKET SUPPLY
• MARKET SUPPLY IS THE
COMBINATION OF ALL BUSINESS
SUPPLY SCHEDULES THAT PROVIDE
THE SAME PRODUCT (TOTAL OF ALL)
• UPWARD SLOPING JUST LIKE
INDIVIDUAL SUPPLY CURVE
INFLUENCE OF PRICE ON SUPPLY
• PRICE: IS THE MOST SIGNIFICANT
INFLUENCE ON THE QUANTITY
SUPPLIED OF ANY PRODUCT
• OTHER FACTORS CAN AND DO MOVE
THE SUPPLY CURVE ON THE GRAPH
TO THE LEFT AND RIGHT ALSO
FACTORS THAT AFFECT SUPPLY
• WHEN SUPPLY GOES DOWN THE SUPPLY
CURVE SHIFTS TO THE LEFT
• WHEN SUPPLY GOES UP THE SUPPLY
CURVE SHIFTS TO THE RIGHT
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CHANGE IN COST OF RESOURCES
CHANGE IN COST PRODUCTIVITY
CHANGE IN TECHNOLOGY
CHNGE IN GOVERNMENT POLICY
CHANGE IN TAXES
CHANGE IN SUBSIDIES
ELASTICITY OF SUPPLY
• SUPPLY ELASTICITY: MEASURE OF
HOW QUANTITY SUPPLIED OF A GOOD
OR SERVICE CHANGES IN RESPONSE
TO CHANGES IN PRICE
• INELASTIC? DOES IT OCCUR?
MARKETS & PRICES
• SUPPLY AND DEMAND WORK
TOGETHER TO SET PRICES AND IN
OUR ECONOMY PRICES FORM BASIS
FOR OUR ECONOMY
PRICE ADJUSTMENT PROCESS
• OCCURS WHEN YOU COMBINE
SUPPLY AND DEMAND CURVE TO
REACH THE EQUILIBRIUM PRICE BUT
CAN BE INTERUPTED AND HAVE TO
ADJUST ITSELF
SURPLUS
• THE AMOUNT BY WHICH THE
QUANTITY SUPPLIED IS HIGHER THAN
QUANTITY DEMANDED
– PRICE IS USUALLY HIGHER THAT PEOPLE
WILL PAY FOR AN ITEM
SHORTAGE
• THE AMOUNT BY WIHC THE QUANTITY
DEMANDED IS HIGHER THAN
QUANTITY SUPPLIED
– PRICE IS USUALLY TOO LOW
GOVERNMENT INTERVENTION AND
IMPACT OF IT
• PRICE CEILINGS: MAX PRICE THAT
CAN BE CHARGED FOR GOODS AND
SERVICES
– RENT APARTMENTS/INTEREST RATES
• PRICE FLOOR: MIN PRICE THAT CAN
BE CHARGED FOR GOODS AND
SERVICES
– MINIMUM WAGE
PRICE AS SIGNALS
• THEY HELP US MAKE DECISIONS AND
ANSWER THE 3 QUESTIONS
– WHAT
– HOW
– FOR WHOM
ADVANTAGES OF PRICES
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PRICES ARE NEUTRAL
PRICES ARE FLEXIBLE
PRICES AND FREEDOM OF CHOICE
PRICES ARE FAMILAR