Transcript Intro to Supply & Demand

Supply and Demand
The Heart & Soul of Market Economics
(used to construct a demand curve)
Demand
Schedule
Will
you
buy a slice of Pizza?
Demand Schedule
Price Quantity
$11.00 ______
$9.00 ______
$7.00 ______
$5.00 ______
$3.00 ______
$1.00 ______
1. A decrease
in price ...
Pizza by the Slice Market
Price
$11.00
9.00
7.00
5.00
Price ↓ => Qty D↑
3.00
1.00
D1
0 1
2
3
4
5
2. ... increases quantity
demanded
6
Quantity
Demand
• The quantity of goods or services that consumers are
willing and able to purchase at various prices
Law of Demand
Price Decrease
Qty Demanded increases
Inverse Relationship
Drawing a Demand Curve
Price Decrease
Qty Demanded increases
Price
Why demand slopes downward:
1) Law of Diminishing Marginal Utility
2) Substitution Effect
Quantity
Pizza & Happiness
Utility = Satisfaction
• Total Utility means the total satisfaction a person receives
when purchasing a good or service
• Marginal Utility: The amount of additional satisfaction a
person gets from one more unit of a product
Law of Diminishing Marginal Utility
• As more units are consumed => additional satisfaction falls
Marginal Utility
Pricing Lessons of Diminishing
Marginal Utility
Give volume discounts:
Examples:
• a dozen donuts
• 3 T-shirts in a package
• “free” refills on large popcorn
Marginal Utility
Supply
• The quantity of a product or service that a firm is willing
and able to sell at various prices
Law of Supply
Price increases
Qty Supplied increases
Positive Relationship
Equilibrium occurs when Demand = Supply
T-Shirts
Price
-------------- E1
-------------
P1
S1
Q1
D1
Qty
Worksheet
• Graphing S & D for CD’s