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Supply quantity Demand price Financial Statistics Chapter 2.3: Supply & Demand DO NOW Raise your hand… • How many people would be willing to buy a new video game for $1? • For $20? • For $50? • For $75? • For $100? • For $200? • Does our scatterplot have a trend? What is it? Demand Function Features: • Relates price to quantity • Negative slope: as price increases, quantity demanded decreases quantity Demand price Supply Function Now think about the video game problem from the game company’s standpoint (the supplier). • If you are only able to sell games for $1 a piece, how many would you want to produce? • If you are able to sell games for $50 a piece, how many would you want to produce? • If you are able to sell games for $100 a piece, how many would you want to produce? Supply Function Features: • Relates price to quantity • Positive slope: as price increases, quantity supplied increases Supply quantity price Markup Most retail companies that sell a product have to buy it from a supplier at a wholesale price. Then, the retail company increases the price by a certain amount, called a markup, so it can make a profit. The amount for which the retailer sells the product is the retail price. 1. Suppose Gamestop purchases Grand Theft Auto V from the video game company for $20 per game. Gamestop charges its customers $59.99 for the game. What is the markup? 2. $59.99 – 20 = $29.99 What is the percent markup? $𝟓𝟗. 𝟗𝟗 = 𝟐. 𝟗𝟗𝟗𝟓 = 𝟐𝟗𝟗. 𝟗𝟓% 𝟐𝟎. 𝟎𝟎 3. What is the retail price of the game if another store marks up the wholesale price by 200%? $𝟐𝟎 × 𝟐. 𝟎𝟎 = $𝟒𝟎. 𝟎𝟎 How Price Affects Supply & Demand The supply & demand functions for a video game are given in the graph below. 1. What is the price & quantity at equilibrium? 2. What happens if the price is set at $40? 3. What happens if the price is set at $75? quantity Supply 16 million Demand $59.99 price Shifts in Supply & Demand Curves #1. It becomes known that an electronics store is going to have a sale on their video games 3 months from now. 1. 2. 3. 4. Which is affected, supply or demand? Draw a diagram showing the direction of the shift. Does the price at equilibrium increase or decrease? Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #2. The workers who produce the video games go on strike for over two months. 1. Which is affected, supply or demand? 2. Draw a diagram showing the direction of the shift. 3. Does the price at equilibrium increase or decrease? 4. Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #3. The workers who produce the video games receive a $2 per hour wage increase. 1. Which is affected, supply or demand? 2. Draw a diagram showing the direction of the shift. 3. Does the price at equilibrium increase or decrease? 4. Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #4. When the average price of movie tickets rises, it has an effect on the purchase of video games. How is the supply and demand of video games affected? 1. 2. 3. 4. Which is affected, supply or demand? Draw a diagram showing the direction of the shift. Does the price at equilibrium increase or decrease? Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #5. The price of business software, a product also supplied by video game producers, rises. 1. Which is affected, supply or demand? 2. Draw a diagram showing the direction of the shift. 3. Does the price at equilibrium increase or decrease? 4. Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #6. A reputable private research institute announces that children who play video games also improve their grades in school. 1. 2. 3. 4. Which is affected, supply or demand? Draw a diagram showing the direction of the shift. Does the price at equilibrium increase or decrease? Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #7. Because of the use of improved mass production techniques, the amount of labor necessary to produce games decreases. 1. 2. 3. 4. Which is affected, supply or demand? Draw a diagram showing the direction of the shift. Does the price at equilibrium increase or decrease? Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #8. The price of video game systems increase. 1. Which is affected, supply or demand? 2. Draw a diagram showing the direction of the shift. 3. Does the price at equilibrium increase or decrease? 4. Does the quantity at equilibrium increase or decrease? Shifts in Supply & Demand Curves #9. The popularity of video games increases in world markets. At the same time, new technology lowers production costs by a proportional amount. 1. 2. 3. 4. Which is affected, supply or demand? Draw a diagram showing the direction of the shift. Does the price at equilibrium increase or decrease? Does the quantity at equilibrium increase or decrease? Exit Ticket 1. A large firm enters the video game business with a new line of exciting games. a) b) c) d) Which is affected, supply or demand? Draw a diagram showing the direction of the shift. Does the price at equilibrium increase or decrease? Does the quantity at equilibrium increase or decrease? 2. Suppose Best Buy marks up its video games by 210%. If it costs the store $25 per game, what is the retail price Best Buy charges its customers?