Transcript Supply and Demand PowerPoint File

The Law of Demand
What is demand?
 Demand is the desire, willingness, and ability to buy
a good or service
 First, a consumer must want a good or service
 Second, a consumer must be willing to buy that
good or service
 Third, the consumer must have the resources
available to buy it
The Individual Demand Schedule
 A demand schedule is a table that lists the amount of
a product or service that someone is willing to buy
depending on the price of that product or service.
 For example, George is not willing to pay $60 each
for a video game, but would be willing to buy more
video games if they were cheaper.
The Individual Demand Schedule
Price
Quantity
$60
0
$40
1
$30
1
$20
2
$10
3
$5
5
The Demand Curve
 The Demand Curve is a graphic representation of the
demand schedule
The Demand Curve
$70
$60
$50
$40
Series 1
Column1
Column2
$30
$20
$10
$0
0
1
2
3
4
5
The Demand Curve
 The demand curve slops down from left to right
because when a good or service becomes cheaper,
people are more likely to buy it and buy more
of it.
 For example, when gas becomes cheaper, more
people will drive more and buy cars that use more
gas
The 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
 http://www.khanacademy.org/financeeconomics/microeconomics/v/law-of-demand
 Which direction does a demand curve slope?
 Why does the demand curve slope down and to the
right?



As the price falls the quantity demanded by consumers will
fall.
[As the price rises the quantity demanded by consumers will
fall.]
As the price rises the quantity demanded by consumers will
rise.
The Law of Diminishing Returns
 Almost everything that we buy provides utility,
 meaning the pleasure, usefulness, or satisfaction we get from
using the product.
 The utility we get from consuming more of a
product usually changes though.
The Law of Diminishing Returns
 For example, when eating pizza, you may be very
hungry before eating the first slice and therefore get
the most utility from the first slice.

However, the more slices you eat, the less utility you
receive from each slice.
The Law of Diminishing Returns
 When we buy something, we ask ourselves the utility
we get from a purchase and whether it is worth the
price we have to pay.
 Because utility diminishes as we consume more and
more of a product, it is reasonable to believe that
people are not willing to pay as much for the
second item as they did the first
The Law of Diminishing Returns
 So when the demand curve slopes downward, it
simply tells us that we would be willing to pay the
highest price for the first unit we consume.


And a slightly lower price for the next unit
And an even lower price for the third unit
The Law of Supply
What is Supply?
 Supply refers to the various quantities of goods or
services that producers are willing to sell at all
possible market prices.
 Supply normally refers to the output
 Buyers demand different quantities of a good
depending on the price

Suppliers offer different quantities of a product depending on
the price that buyers are willing to pay
Individual Supply Schedule
Price
Quantity
$50
100
$40
90
$30
70
$20
30
$10
10
$5
1
The Supply Curve
 The supply curve slopes in the opposite direction
of the demand curve
 The supply curve slopes up from left to right because
the higher the price of an item, the more of that item
producers are willing to make.
 For example, when the price of gasoline at the
pumps increases, refineries will produce more
gasoline
The Supply Curve
$60
$50
$40
Series 1
Column1
Column2
$30
$20
$10
$0
0
1
2
3
4
5
The Law of Supply
 As the price rises, the supply rises. As price falls,
supply falls.
 Why?
 The higher price of a good, the greater the incentive
is for a producer to supply more of a good to the
buyers
 The producer will expect to make a higher profit
because of the higher price
The Law of Supply
 http://www.khanacademy.org/video/law-of-supply
 What direction does the supply curve slope?
 Why does the supply curve slope up and to the right?
 As the price rises the quantity supplied by producers will fall.
 [As the price falls the quantity supplied by producers will
rise.]
 As the price rises the quantity supplied by producers will rise.
Market Supply and Market Demand
 If you combine the supply schedules of all businesses
that provide the same good or service, the total is
called the market supply
 If you combine the total of all consumers’ demand of
a specific good or service, the total is called the
market demand.
The Influence of Price
 Price is the most significant influence on the
quantity supplied of any product
 For example, you are offering your services for sale
when you look for a job.

Your economic product is your labor, and you would probably
be willing to supply more labor for a high wage, or price, than
you would for a low one
 http://abcnews.go.com/Nightline/video/silly-bandz-
latest-fad-11686769
 http://www.youtube.com/watch?v=Ng3XHPdexNM