Transcript Relationship between Supply, Demand, and Price Powerpoint

Relationship Between Demand, Supply and
Price.
Demand – the quantity of
a good or service that
consumers are willing and
able to buy at a particular
price.
Law of Demand – as prices
decrease, consumers buy more,
as they increase consumers buy less.
There are several conditions that create a
demand for a good or service:
1. Consumer must be interested or aware of it.
2. Enough of it must be available.
3. The price must be reasonable and
competitive.
4. It must be accessible to the consumer.
Factors that increase or decrease demand:
1. Changing Consumer Income – usually an
increase in income means people buy
more.
2. Changing Consumer Tastes – people
demand what is in fashion.
3. Changing Future Expectations – if prices
are expected to increase consumers may
purchase more now.
4. Changes in Population – more people
equals more demand and as a segment of
the population increases certain things
increase in demand. (Seniors)
Supply – the quantity of a good or service that
businesses are willing to provide at a particular
price.
Law of Supply – as prices decrease, producers
supply less and as prices increase producers
supply more.
There are several conditions that affect the
supply of a good or service:
1. The cost of producing it.
2. The price consumers will pay.
Factors that increase or decrease supply:
1. Change in the Number of Producers –
more producers increase supply.
2. Changes in Prices – a price decrease will
cause a reduction in supply.
3. Changes in Technology – reduces the cost
of production and increases supply.
4. Changing Future Expectations – producers
have to predict demand and adjust supply
to it.
5. Changing Production Costs – lower cost
resources means you can supply more
goods for the same cost.
DEMAND AND SUPPLY GRAPHS
Consumers buy more as prices decrease – this
can be shown with a demand curve.
Suppliers provide more as prices increase this can be shown with a supply curve.
The point at which the supply and demand
curves meet is the equilibrium price.
Complete
supply and
demand
worksheet.
Supply and Demand Worksheet
NAME: ______________________
1. Create a demand graph using the following table of values:
PRICE
10
20
30
40
50
60
70
QUANTITY
500
450
400
350
300
250
200
2. Create a supply graph using the following table of values:
PRICE
10
20
30
40
50
60
70
QUANTITY
200
250
300
350
400
450
500
3. Using the graphs above, what would be the quantity demanded at a price of
$80? _________
b) What would be the quantity supplied at $80? ________
Demand
Price
u
At the price of $25,
the quantity
demanded = 15.
Demand
25
15
Quantity
Change in Quantity Demanded
A change in the
quantity demanded
is a movement
along the demand
curve. Caused by a
price change.
u
u
When price falls to
$10, the quantity
demanded
increases to 30.
Price
Demand
25
10
15
30
Quantity
Increase in Demand
u
u
u
u
An increase in
demand is a
rightward shift in
the entire curve.
More is demanded
at every price.
At the price of $25,
the quantity
demanded = 25
after the increase.
Caused by
something other
than a price change
Price
Demand
New Demand
25
15
25
Quantity
Decrease in Demand
u
u
u
A decrease in
demand is a
leftward shift in
the entire curve.
Less is
demanded at
every price
At the price of
$25, the quantity
demanded = 10
after the
decrease.
Price
Demand
25
New Demand
10
15
Quantity
Supply
Price
u
At the price of
$25, the quantity
supplied = 31.
Supply
25
31
Quantity
Change in the Quantity Supplied
u
u
A change in the
quantity supplied
is a movement
along the supply
curve.
At the price of
$10, the quantity
supplied = 16.
Price
Supply
25
10
16
31
Quantity
Increase in Supply
u
u
u
An increase in
supply is a
rightward shift in
the entire curve.
More is supplied
at every price.
At the price of
$25, the quantity
supplied = 36
after the increase.
Price
Supply
25
New Supply
31
36 Quantity
Decrease in Supply
u
u
u
A decrease in
supply is a leftward
shift in the entire
curve.
Less is supplied at
every price.
At the price of $25,
the quantity
supplied = 21 after
the decrease.
Price
New Supply
Supply
25
21
31
Quantity
Inelastic Demand
• Quantity demanded does not respond
strongly to price changes.
• Necessities tend to be income inelastic.
• Examples include food, fuel, clothing,
utilities, and medical services.
Elastic Demand
• Quantity demanded responds strongly to
changes in price.
• Luxuries tend to be income elastic.
• Examples include sports cars, furs, and
expensive foods.
Inelastic Supply
• Quantity supplied does not respond
strongly to price changes.
• Examples include gold and tomatoes.
Elastic Supply
• Quantity supplied responds strongly to
changes in price.
• Examples include chicken and ice-cream.
How can consumers respond to price
increases for goods and services?
•
•
•
•
Purchase less.
Use a cheaper substitute.
Delay the purchase.
Do not purchase.
Competition – when two or more businesses
try to sell the same type of product or service
to the same customer.
Direct Competition – is between similar
products.
Indirect Competition – is between goods or
services that are not directly related to each
other.
What happens when competition enters the
marketplace?
•
•
•
•
•
Gives consumers more choice.
May reduce prices.
Forces businesses to be more efficient.
Improves customer service.
May force businesses out of the
marketplace.