Transcript Unit 2 * Demand and Unit 3 - Supply

Unit 2 - Demand
 What is Demand?
 Demand Curve / Demand Schedule
 Law of Demand
 Change in Demand
 Change in Quantity Demanded
Demand
 The amount of a good or service that consumers are
able and willing to buy at various possible prices
during a specified period of time.
 Since we have unlimited wants and limited resources we
need to make economic choices to determine what
demand will be.

Demand for one person/family/business/government may not
be the same for all.
 Quantity Demanded – the amount of a good or
service that a consumer is willing and able to purchase
at a specific price.
What happens in a Market?
 Market – the process of freely exchanging goods and
services between buyers and sellers.
 Our demand of goods will help to determine what
products are bought and sold in the market.
 Voluntary Exchange – a transaction in which a buyer
and a seller exercise their economic freedom by
working out their own terms of exchange.
 The problem of what to charge and how much to pay
work themselves out threw this system. Both sides agree
on a price that they are willing to pay and receive for a
product.
Law of Demand
 Economic rule stating that quantity demanded and
price move in opposite directions.
 Quantity Demanded – the amount of a good or service
that a consumer is willing and able to purchase at a
specific price.
 As price goes up…quantity demanded goes down!!

We tend to buy less of a product when it is not on sale, or the
price goes up
 Examples?
 As price goes down…quantity demanded goes up!!

We always purchase more of a product when it is on sale or the
price drops. (I get two when a product is marked down to buy
one get one free)
 Examples?
Effects of Changes in price on
Demand
 Real income effect – economic rule stating that
individuals cannot keep buying the same quantity of a
product if its price rises while their income stays the
same.
 What will the individual need to do to account for the
change?
 Substitution effect – economic rule stating that if two
items satisfy the same need and the price of one rises,
people will buy more of the other.
Utility – The ability of a good or
service to satisfy consumer wants
 Marginal utility – additional amount of satisfaction
 Diminishing Marginal utility – rule stating that the
additional satisfaction a consumer gets from
purchasing one more unit of a product will lessen with
each additional unit purchased.
“Close you eyes and imagine you are walking through the
dessert with no water…”
Graphing Demand
 Demand Schedule – table showing quantities
demanded at different possible prices.
Price per DVD
Quantity Demanded
$20.00
100
$18.00
300
$16.00
500
$14.00
700
$12.00
900
$10.00
1,100
$8.00
1,300
Graphing Demand
 Demand Curve – downward sloping line that shows in
graph form the quantities demanded at each
possible price.
 Draw out the demand curve for the previous demand
schedule

Talk about the movement of the curve as price changes!!
What determines demand?
 Changes in Population in need to buy and sell goods or
services will also change.
 Changes in Income cause changes in the amount of
money people are willing to spend, which directly
relates to how much of a product they will purchase.
 Changes in Taste and Preferences have a huge
influence on demand!
 If a product is not “in style” it will likely not be sold
widely or at a very high price, but an extremely new or
popular item would be.
What Determined Demand?
 Substitutions
 Products that can be used in place of one another.

Butter or Margarine
 Complementary goods
 Products that need to be, or often are, used with another
product.


DVD and DVD player
Camera and memory cards
 Study the graphs on pg. 180-181 to see what happens to
demand when these changes occur!!
Elasticity of Demand
 Elasticity – economic concept that deals with
consumers responsiveness to an increase or decrease
in the price of a product.
 Generally speaking… when the price of a product goes up
consumers purchase less of that product, and when the
price goes down we purchase more.
 This is the case for many products, but can you think of
any products that don’t have elasticity?

When a price change occurs, it has little or no impact on the
amount of that product that you would be willing or need to
purchase.
Inelastic V. Elastic Demand
 Inelastic demand – price change has little impact on
the quantity demanded by consumers.
 Usually these are goods that have few or no substitutes
or are necessities.
 Elastic demand – when a rise or fall in the price of a
product’s price greatly impacts the amount of that
product that people are willing to buy.
 Usually these are luxury items that have many
substitutes.
Inelastic V. Elastic Demand
Items with Inelastic
Demand
Items with Elastic Demand
 Flour
 Snacks
 Sugar
 Entertainment
 Milk
 Clothing
 Eggs
 What else?
 Medicine
 Can a product be elastic for
 Gas
 Utilities
 What else?
one person and inelastic for
another?
 What do you think?
What factors determine
Elasticity?
 Existence of substitutes that can be used in place of that
item if a change in price occurs.
 Percentage of a person’s budget that is devoted to
purchasing that item.
 Large budget items tend to have more elasticity because
they have a greater impact on your budget.
 The time that consumers are given to adjust to the
change in price.
 The more time we have to adjust to price changes… the
greater the elasticity of demand.

We can adjust our behavior to change with prices over time
Unit 3 - Supply
Supply
 The amount of a good or service that producers are
willing and able to sell at various prices during a
specified period of time.
 Quantity Supplied – the amount of a good or service
that a producer is willing and able to supply at a
specific price.
Law of Supply
 Economic rule stating that price and quantity supplied
move in the same direction.
 As price goes up…quantity demanded goes up.
 As price goes down…quantity demanded goes down.
 This goes to the root of the profit incentive


The higher the price of a good is, the more incentive
producers have to make and sell that product.
Higher prices; offer more revenue, and cover additional costs
of producing more.
Graphing Supply
 Supple Schedule – Table showing quantities supplied
at different possible prices.
Price Per DVD
Quantity Supplied
$10.00
100
$12.00
300
$14.00
500
$16.00
700
$18.00
900
$20.00
1,100
Graphing Supply
 Supply Curve – upward sloping line that shows in
graph form the supplied at each possible price.
 Draw a supply curve from the information on the supply
schedule.

Talk about the movement of the supply schedule in relation to
changes that may affect supply.
 Pg. 190 - 191
Determinants of Supply
 Price of Inputs needed to make a product plays a huge role in
the price of the product, thus the amount of the product that
will be produced for sale.
 Number of firms in an industry plays a large and obvious role
in how much of a product is supplied at any given price.
 Firms are constantly entering and leaving industries.
 When taxes increase firms supply less of a product because the
increase causes the price of production to increase, and vice
versa
 Technology can easily change the price of production and the
efficiency of production, thus increasing supply.
Law of Diminishing Marginal
Returns
Economic Rule that states as
more units of a factor of
production are added to
other factors of production,
after some point total output
continues to increase… but at
a diminishing rate.
-Why do you think
diminishing marginal returns
occurs?
- Why is it important for
businesses to understand this
concept?
Number of Workers at
McDonalds
Additional output
produced
11
1,100
12
1,100
13
1,000
14
900
15
800
16
700
17
600
18
500
19
400
20
300
21
200
Equilibrium Price
 Equilibrium Price – price at which the amount producers are
willing to supply is equal to the amount that consumers are
willing to buy.
 Supply = Demand
 No Shortage – situation where quantity demanded is greater
than quantity supplied at the current price.


Not enough to go around
Prices are raised to lessen demand and increase supply
 No Surplus – situation where quantity supplied is greater than
quantity demanded at the current price.


Too many to sell
Prices drop to increase demand and decrease supply
Review Demand
 Compare and contrast demand and quantity





demanded.
Explain the law of demand
Difference between a demand schedule and curve
Understand movement on the demand curve
What factors determine demand?
Explain elastic V. inelastic demand
Review Supply
 Compare and contrast supply and quantity supplied
 Explain the law of supply
 Describe the relationship between supply and demand
 Understand the movement on a supply curve
 What factors determine supply?
 What is equilibrium price and why do we want to
achieve it?
 What can we do to achieve equilibirum?