Transcript Supply

Demand/Supply
Economics
Mr. Biddle
Microeconomics
• The area of economics
that deals with
behavior and decision
making in small units
– Looks at individuals
and businesses
• Explains how prices
are determined and
how individual
economic decisions
are made
You look at the individual
tree not the forest
Introduction to
Demand
• Demand - The desire, ability, and willingness
to buy a product
– It is not enough to desire a product
– I can want to buy a Dodge Challenger, but I’m not
in the market to purchase one
Desire + Ability + Willingness = Demand
Introduction to
Demand
• Imagine we are going
to open up a shop that
sells DVD’s
• The first thing we
need to do is find out
the demand for our
product so we can set
a price
Introduction to
Demand
• There are many ways
to find the demand:
– Survey
– Look at past DVD
sales
– Visit similar shops to
acquire info
Introduction to
Demand
• Once we have our data
gathered we can create a
table known as a Demand
Schedule
• This is a listing that shows
the various quantities
demanded of a particular
product at various prices in
the market
– This only shows the demand
for one consumer
Consumer A said he would
purchase the following
amounts of DVD’s at the
following prices:
0 at $30
0 at $25
1 at $20
3 at $15
5 at $10
8 at $5
Introduction to
Demand
Demand Schedule
• A demand schedule
shows the amount that
a consumer is willing
and able to buy at each
price
• It also shows that the
consumer is willing to
buy more units as the
price gets lower
*
Price
Quantity
Demanded
$30
0
$25
0
$20
1
$15
3
$10
5
$5
8
*
Introduction to
Demand
• Demand Curve – a graph
showing the quantity
demanded at each price in
the market
– You transfer your
information from the
demand schedule to a graph
by plotting the points and
then connecting them
– Both the schedule and curve
show the same info, one is a
table the other is a graph
$30
$25
$20
$15
$10
$5
1 2 3 4 5 6 7 8 9 10
Introduction to
Demand
The Law of Demand – The
quantity demanded of a
good or service varies
inversely with its price
Basically
When price goes up,
demand goes down or Vise
Versa
Market Demand
Schedule/Curve
• The market demand
schedule/curve shows
the quantities demanded
by everyone who is
interested in purchasing
the product in the market
• You must add up every
consumers demand to
get your market demand
Market
Demand Schedule
Price
Consumer 1
Consumer 2
$30
0
0
$25
0
1
1
$20
1
2
3
$15
3
3
6
$10
5
5
10
$5
8
7
15
Market
Demand
0
Market
Demand Curve
$30
$25
$20
$15
$10
$5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Supply
• Supply- the amount of a
product that would be offered
for sale at all possible prices
that could prevail in the
market
• How much a dealer is willing
to sell at each price
• A workers work is his/her
supply. The higher he/she is
paid the more supply he/she
will be willing to give
Law of Supply
• The principle that
suppliers will normally
offer more for sale at high
prices and less at lower
prices.
(Suppliers decision)
• You want to sell more at
higher prices, b/c you
make more money per
unit
Supply Schedule
Supply Schedule
• A listing of various
quantities of a
particular product
supplied at all possible
prices in the market
• Supply goes up with
the price
• Opposite of Demand
Price
Quantity
Supplied
$30
8
$25
7
$20
6
$15
4
$10
2
$5
1
Supply Curve
• A graph showing the
various quantities
supplied at each and
every price that might
prevail in the market
• Slopes from the left to
the right showing a
positive slope
Remember this is only one firm
Market Supply
Schedule/Curve
• The supply
schedule/curve that
shows the quantities
offered at various prices
by all firms that offer the
product for sale in a
given market
Market
Supply Schedule
Price
Firm A
Firm B
Market
$30
8
5
13
$25
7
4
11
$20
6
3
9
$15
4
2
6
$10
2
1
3
$5
1
0
1
Market
Supply Curve
Example
Quantity Supplied
• The amount that
producers bring to the
market at any given
time
A Change in
Quantity Supplied
• The change in amount
offered for sale in
response to a change
in price
• When the price
changes so does the
supply
Money Statement
• The bottom line is that
sellers (producers) want to
sell more of their products
when the price is high and
less when the price is low,
b/c they want to get as
much money for their
product as possible
Change in Supply
• A situation where
suppliers offer different
amounts of products for
sale at possible prices in
the market
• Changes in supply,
whether they’re increases
or decreases can occur
for several reasons.
Cost of Inputs
(Money you have in a
product)
• The cost to produce a
good has an impact on
how much sellers are
willing to supply
• A decrease in the cost of
inputs, such as labor or
packaging, lead to the
seller increasing supply or
vise-versa
Productivity
(How much you make in a
certain time period)
• When workers work more
efficiently they produce
more supply in shorter
time
• It is up to management to
motivate and keep the
workers happy to be more
efficient, b/c if they aren’t
happy they won’t get as
much work done
Technology
• New Technology can help
increase supply
• New Machines, chemicals,
or industrial processes can
increase supply by
lowering the cost of
production, or by
increasing productivity
– Ex- The assembly line
increased the production of
automobiles
Technology
• Technology can have a
negative effect on supply
– Ex-If a machine breaks
down than the supply
would decrease
• However, Technology
normally has a positive
effect
Taxes and Subsidies
Taxes
• Firms view taxes as a
cost
• If a producers inventory
(products) are taxed it is
viewed as a rise in the
cost of the product
(Supply would decrease)
• If taxes were lowered or
cut than supply would
increase
Taxes and Subsidies
• Subsidy- a government payment
to an individual, business, or
other type of group to
encourage or protect a certain
type of economic activity
• Subsidies lower the cost of
production
• They encourage old producers
to stay in the market and new
ones to enter.
• Farmers receive subsidies to
stay in business
Expectations
• Future expectations of the
price of their products can
effect how much a supplier is
willing to supply
• If the producer thinks the
price of his product will go
up in the future he will with
hold some of his supply
• They may predict a fall in
price and try to produce and
sell as much as possible
ASAP
Government
Regulations
• When the government
sets new rules or laws
it can effect supply
• Ex- If automobiles
have to have certain
safety equipment, like
airbags it would
increase the cost of
production and
decrease supply
Number of Sellers
• The more people there are
selling products the
bigger the supply is in the
market (Vise-Versa)
• There are people entering
and leaving the market
everyday.
– The Internet is helping to
add people to the market
How Supply and
Demand Effect Each Other
• Supply effects demand, b/c when there is small
amounts supplied than the demand goes up, b/c
not everyone demanding the product is receiving it
• When supply is high the demand goes down, b/c
everyone demanding it is getting it
• Demand effects supply, b/c when more people buy
a product the supply goes down. The less people
buy a product the higher the supply
Demand/Supply
Schedules
Demand Schedule
Price
$30
Quantity
Demanded
Supply Schedule
Price
Quantity
Supplied
$30
8
$25
7
$20
6
1
$25
2
$20
3
$15
5
$15
4
$10
7
$10
2
$5
9
$5
1