Transcript Demand and Supply

Demand and Supply



Demand: The various
amounts of a good which
people are willing and able
to buy at different prices
when all other relevant
things are held constant.
Who wants a yacht?
Ceteris Paribus
• "with other things the same."
• "all other things being equal."
Demand Schedule for Corn
Price per
Quantity
Bushel
Demanded
Per Week
$5
10
$4
20
$3
35
$2
55
$1
80
Law of demand


Quantity demanded of a good or service
varies inversely with its price.
Consumers will want to buy more at a
lower price and less at a higher price.
Demand for Corn
$5
Price
$4
$3
$2
$1
$0
20
40
Quantity
60
80
What causes the demand for a
product to change?



Price will cause a
change in behavior
according to the
law of demand
A change in price
will result in a
movement along
the demand curve
This is called a
change in quantity
demanded
Snickers
P
.75¢
.50¢
D1
1
2
Q
What else can change our demand
for a good?


Everything other than price, will result in a
change in demand or a shift in demand
Example:
• Mr. Kohn gives Mr. Unwin a raise
• Or
• Mr. Kohn fires Mr. Unwin

Price has not changed, but other
conditions have caused me to demand
fewer goods
Snickers
P
Mr. Kohn Rocks!
.75¢
D2
D1
Q1
Q2
Q
Snickers
P
Recessions are a drag
.75¢
D1
D2
Q2
Q1
Q
Determinants that shift demand
1.
2.
The number of
consumers
A change in the
price of a
complimentary
good
Determinants that shift demand
3.
4.
A change in the
price of a
substitute
A change in
consumer income
Determinants that shift demand
5.
6.
A change in
expectations
A change in
consumer taste
•
•
•
•
Advertising
Popularity
seasonal effect
news reports
Supply

The amounts of a
good or service
that sellers will
offer at various
prices when all
other relevant
things are held
constant (ceteris
paribus)
Supply Schedule for Corn
Price per
Quantity
Supplied
Bushel
Per Week
$5
60
$4
50
$3
35
$2
20
$1
5
Law of Supply



As prices rise, the
quantity supplied
rises; as prices fall,
the quantity
supplied falls
Producers want to
sell more at higher
prices and less at
lower prices
Profit per unit of
production
Supply of Corn
$5
Price
$4
$3
$2
$1
$0
20
40
Quantity
60
80
Effect of price on supply



Changes in price
result in a
movement along
the supply curve
We call this a
change in quantity
supplied
Profit per unit of
production
P
Snickers
S1
.75¢
.50¢
1
2
Q
Determinants that shift supply

Anything, other
than price that
causes suppliers to
provide more or
less of their
product results in
a:
• Change in supply
• Shift in supply

Profit per unit of
production
Determinants of Supply
1.
2.
Number of
Suppliers
Price of inputs
(factors of
production)
Determinants of Supply
3.
Prices of related
goods produced
Determinants of Supply
4.
Technology
Taig CNC Mill
4.
Expectations
Determinants of Supply
6.
7.
Taxes and
Subsidies
Government
regulation