Transcript Demand - Patrick Minges

Guide to Reading
Big Idea
Supply and demand in a market
interact to determine price and
quantities bought and sold.
An Introduction to Demand
Demand is the desire, willingness, and
ability to buy a good or service.
An Introduction to Demand (cont.)
• Demand is the desire, willingness, and
ability to buy a good or service.
• Demand schedule:
– Lists how much of a product someone
would be willing to buy at different prices
An Introduction to Demand (cont.)
• Demand curve:
– Graph showing how much of a product
would be bought at all possible prices
An Introduction to Demand (cont.)
• The law of demand
– Quantity demanded and price move in
opposite directions
– A common sense approach to demand
Market Demand
Market demand is the total demand of
all consumers for a product or service.
Market Demand (cont.)
• Market demand is the total demand of all
consumers for a product or service.
• Determining market demand for an item
involves research.
The Law of Demand
Market Demand (cont.)
• Utility:
– The pleasure a product provides
– Not all objects have utility for all people
Market Demand (cont.)
• Diminishing marginal utility—product
pleasure decreases with increased
consumption
• Explains why prices fall as consumers buy
more of an item.
Do you think you would be willing to
pay the same amount for a second
copy of an item?
A. Yes
B. No
A. A
B. B
0%
B
A
0%
Guide to Reading
Big Idea
Supply and demand in a market
interact to determine price and the
quantities bought and sold.
Changes in Demand
Several different factors can cause
market demand for a good or service to
change.
Changes in Demand (cont.)
• Demand changes over time due to many
forces.
• Changes in demand:
– More consumers enter the market
– Incomes, tastes, and expectations change
– Prices of related goods change
– Can be shown with market demand curve
Changes in Demand (cont.)
• Changes in population:
– More consumers means higher demand
– Fewer consumers means lower demand
– Can be affected by immigration
– May also be affected by birth and death
rates or migration to other areas
Changes in Demand (cont.)
• Changes in income:
– High wages give people more money
to spend
– Low wages give people less money
to spend
Changes in Demand (cont.)
• Changes in taste:
– Advertising boost
– Popularity fades over time
Changes in Demand (cont.)
• Changes in expectations:
– Knowledge about future products
– Worry about future events
A Change in Demand
Changes in Demand (cont.)
• Product-Related Changes:
– Changes in quality
– Changes in substitutes
– As price of product goes up, demand for
its substitute will also go up.
Change in Demand for Substitutes
Changes in Demand (cont.)
– Changes in complements (products used
together)
– As demand for one product goes up or
down, so will demand for its
complements.
• Change in quantity demanded tracks the
movement along a given demand curve.
Elasticity of Demand
Demand elasticity is the extent to
which a change in price causes a
change in the quantity demanded.
Elasticity of Demand (cont.)
• Demand elasticity is the extent to which
price changes affect demand.
• Causes of Elastic Demand:
– Attractive substitutes
– Ability to postpone purchase
Elasticity of Demand (cont.)
• Causes of Inelastic Demand:
– Few or no substitutes (e.g., medicine)
• Demand for luxuries more elastic than
demand for necessities
Guide to Reading
Big Idea
Supply and demand in a market
interact to determine price and the
quantities bought and sold.
An Introduction to Supply
Supply is the quantities of a good or
service that producers are willing to
sell at all possible market prices.
An Introduction to Supply (cont.)
• Supply is the quantity of goods and
service for sale.
• Supply is the opposite of demand.
An Introduction to Supply (cont.)
• The law of supply:
– As prices go up, so do supplies of
goods; as prices go down, so do
supplies
– Law illustrated by a supply schedule
The Law of Supply
Do you know why diamonds, a luxury
item, costs more than water, which is
need for survival?
A. Yes
B. No
A. A
B. B
0%
B
A
0%
Graphing the Supply Curve
As with the law of demand, special
tables and graphs can show the law of
supply.
Graphing the Supply Curve (cont.)
• Special graphs and tables can show the
law of supply.
• A supply curve graphically shows the
amount of a product that would be
supplied at all possible prices in the
market.
Graphing the Supply Curve (cont.)
• Profit motive:
– Pushes producers to try to make money
above costs
– Profits can be invested many ways:
• Increase wages
• Invest in business
Graphing the Supply Curve (cont.)
• Acquire more space
• Buy new equipment
• Hire more workers
• Keep money
Graphing the Supply Curve (cont.)
• Market supply:
– Slope follows individual trends
– Upward slope shows that producers
prefer to sell more items at higher prices
– Most important influence is price
Changes in Supply
Supply increases or decreases
depending on many different factors.
Changes in Supply (cont.)
• Different factors cause increases and
decreases in overall supply.
• The cost of resources:
– When the price of resources falls, supply
goes up.
– When the price of resources goes up,
supply falls.
Shifts in the Supply Curve
Changes in Supply (cont.)
• Productivity:
– When productivity increases, costs
go down.
– When productivity decreases, costs
go up.
Changes in Supply (cont.)
• Technology:
– Can lower costs of production and
increase supply
Changes in Supply (cont.)
• Government policies:
– Usually restrict supply
– Taxes
• Higher taxes lower supply
• Lower taxes increase supply
Changes in Supply (cont.)
• Subsidies:
– Lower production costs
• Expectations:
– Producers may adjust supply to meet
expected demand
Changes in Supply (cont.)
• Number of Suppliers:
– More suppliers cause more supply
– Fewer suppliers cause less supply
Elasticity of Supply
Supply elasticity measures how the
quantity supplied of a good or service
changes in response to changes
in price.
Elasticity of Supply (cont.)
• Supply elasticity measures how the
quantity of a good or service changes in
response to price.
• Depends on the speed at which producers
can adjust supply to meet higher prices.
– Inelastic supply cannot easily add more
supply when prices are high.
– Elastic supply can quickly increase
production when prices go up.
Which of the following supplies
would be the hardest to increase
quickly?
A. Beef
B. Gold
C. Water
D. Corn
0%
A
A.
B.
C.
0%
D.
B
A
B
C
0%
D
C
0%
D
Guide to Reading
Big Idea
Supply and demand in a market
interact to determine price and the
quantities bought and sold.
Markets and Prices
The forces of supply and demand work
together in markets to establish prices.
Markets and Prices (cont.)
• Supply and demand work together to
establish prices.
• Surplus indicates price is too high for
demand.
• Shortage indicates price is too low for
demand.
The Price Adjustment Process
Markets and Prices (cont.)
• The balance between supply and demand
is equilibrium price.
– Stays until supply or demand changes
Markets and Prices (cont.)
• Government control over prices:
– Caused by unfair balance between
supply and demand
– Price ceiling—maximum price for
goods and services
– Price floor—minimum price that can be
charged for goods and services
– Minimum wage is example of price floor
Prices as Signals
In our economy, prices are signals that
help businesses and consumers make
decisions.
Prices as Signals (cont.)
• Prices help businesses and consumers
make decisions.
• Advantages of prices:
– They are neutral.
– They are flexible.
– They allow freedom of choice.
– Opposite in command economy
– They are familiar.
Are there any advantages to the lack
of choice offered in command
economies?
A. Yes
B. No
A. A
B. B
0%
B
A
0%
As the supply
increases, the price
decreases.
demand
the desire, willingness, and ability to
buy a good or service
demand schedule
a table showing quantities demanded
at different possible prices
demand curve
downward-sloping line that
graphically shows the quantities
demanded at each possible price
law of demand
the concept that people are normally
willing to buy less of a product if the
price is high and more of it if the price
is low
market demand
the total demand of all consumers for
a product or service
utility
the amount of satisfaction one gets
from a good or service
marginal utility
additional use that is derived from
each unit acquired
identify
to find or show the identity of
illustrate
to show or make clear by example
likewise
similarly or in addition
substitute
a competing product that consumers
can use in place of another
complement
product often used with another
product
demand elasticity
measure of responsiveness relating
change in quantity demanded to a
change in price
immigration
the arrival of people from another
region
phenomenon
a rare or important fact or event
supply
the amount of goods and services
that producers are able and willing to
sell at various prices during a
specified time period
law of supply
the principle that suppliers will
normally offer more for sale at higher
prices and less at lower prices
supply schedule
table showing quantities supplied at
different possible prices
supply curve
upward-sloping line that graphically
shows the quantities supplied at each
possible price
profit
the money a business receives for its
products or services over and above
its costs
market supply
the total of all the supply schedules of
all the businesses that provide the
same good or service
productivity
the degree to which resources are
being used efficiently to produce
goods and services
technology
the methods or processes used to
make goods and services
subsidy
a government payment to an
individual, business, or group in
exchange for certain actions
supply elasticity
responsiveness of quantity supplied
to a change in price
motive
something that causes a person
to act
restrict
to place limits on or keep within
bounds
surplus
situation in which quantity supplied is
greater than quantity demanded;
situation in which government spends
less than it collects in revenues
shortage
situation in which quantity demanded
is greater than quantity supplied
equilibrium price
the price at which the amount
producers are willing to supply is
equal to the amount consumers are
willing to buy
price ceiling
maximum price that can be charged
for goods and services, set by the
government
price floor
minimum price that can be charged
for goods and services, set by the
government
minimum wage
lowest legal wage that can be paid to
most U.S. workers
mechanism
the steps that compose a process or
activity
purchase
to buy or pay for
focus
a central point of attention or activity
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