Supply and Demand 101

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Transcript Supply and Demand 101

Supply and Demand 101
A Basic Supply and Demand Curve
The vertical axis is PRICE
The horizontal axis is QUANTITY
The Demand curve slopes down and to the right
The Supply curve slopes up and to the right
Law of Demand
Price goes up, demand goes down
Price goes down, demand goes up
Price and demand have an inverse relationship
There is a price change, and all movement is
along the demand curve
• Movement means a new variable has been
Factors that Influence Demand
Population increase
Tastes and Preferences
Substitution Effect
Complimentary goods
How satisfied we are
Law of Supply
• The belief that as the price of a good rises, the
quantity supplied will rise
• Price goes up, supply goes up
• Price goes down, supply goes down
• They have a direct relationship and they move in
the same directions
• Like demand, a change means there was a
change in price and movement along the curve.
A new variable has been introduced.
Variables in supply
• Raw materials used in products (inputs)
• Technology- lowers cost of production, produce
• Taxes- regulations protect the consumer, make
things more expensive
• Government regulations- protect the consumer,
make things more expensive
• Work productivity- happy workers, better
• Competition- increases supply, lack of shrinks
EQ, Shortage and Surplus
• Equilibrium Price- The price that both buyers
and sellers will accept. Where supply and
demand curves meet on the graph
• Surplus- extra goods; difference between what
the seller is willing to supply and what buyers
are willing to pay
• Shortage- goods needed to greater than what is