Transcript Supply and demand

SUPPLY AND DEMAND
THE LAW OF SUPPLY AND DEMAND
 When you add value to a product, you increase demand
THE LAW OF SUPPLY AND DEMAND
 When demand is high, manufacturers then need to make
products in larger quantities
 This then reduces the unit cost because fixed costs (ie. Rent)
remain the same whether the company makes 5,000 or
50,000 items
 Then the company can sell the unit at a lower price in the
hopes of then selling MORE units to make more money
THE HULA HOOP
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 Video
 In 1958, Wham-O Inc began marketing the Hula
Hoop in the US. Sales skyrocketed the first year
(+25M sold in first few months and +100M in first
year).
 In 1994, this video from The Hudsucker Proxy portrays a
fictional account for the demand for Hula Hoops as they were
introduced to the market
SUPPLY AND DEMAND
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 Why does a business owner lower the price of
products not selling quickly?
 When would a business owner have the incentive to
increase the price?
 What does a higher price than before communicate
to the consumer about the demand for that product?
SILLY BANDZ
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 Today, Silly Bandz (made by Brainchild Products)
have taken off in sales since 2008. They have gone
from shipping 20 boxes a day to over 1,500.
 The rise in demand has not yet been accompanied by
a rise in price. Instead, they are responding by
increasing their production of Silly Bandz
 Video
 Article
SILLY BANDZ
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 What information is being communicated to the
business owner by the $5 price for the Silly Bandz?
 What can the business do to ensure that Silly Bandz
are allocated to those consumers, which value them
the most?
DEMAND
 The desire of buyers for a G or S
 But what determines market demand?
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THE LAW OF DEMAND
 As the price of a G or S that consumers are willing
and able to buy during a certain time period rises (or
falls), the quantity of that G or S demanded falls (or
rises)
WHAT DETERMINES DEMAND?
 Income
 Expectations
 Other goods
 Consumers in the market
 Other???
INELASTIC DEMAND
 If demand for the product is not affected by a change
in price, the product is said to have “inelastic
demand”
 People will buy them no matter what the price is
because they “need” the product
 Any examples?
THE LAW OF SUPPLY
 As the price of a G or S that producers are willing
and able to offer for sale during a certain time
period rises (or falls), the quantity of that good falls
(or rises)
SUPPLY
 Equilibrium
 The price at which the quantity demanded by buyers equals the
quantity supplied by the sellers
SUPPLY
 Shortage
 Quantity demanded exceeds the quantity supplied
 Happens when the price is below the market equilibrium price
 Surplus
 When the quantity supplied exceeds the quantity demanded
 Happens because the price is above the market equilibrium
price
INELASTIC SUPPLY
 If the supply for a product is not affected by a
change in price, it is called “inelastic supply”
 If a product is difficult to produce or difficult to
produce in mass supply, it will have inelastic supply
HOMEWORK
 Click on the following link (use full screen) and
answer the questions on the hand out
 Could show up on a unit test – so do it!!!