Understanding Supply and Demand in Economics

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Economics – Unit 2
 
Supply and Demand
Law of Supply
Law of Demand
 
Remember Market Systems? - Market Economy
What are the characteristics of Free Markets?
 
What is Supply and Demand?
 
Supply
 
How much the market can offer
At $1,000 per iPhone, Apple can
supply 50,000 iPhone 11s.
 
Demand
 
How much (quantity) of a product or
service is desired by
buyers (consumers)
Willing and able to purchase a product
at a particular price
How many iPhone 11s does the public
want at $1,000?
 
Law of Supply
 
As a good's price increases (goes up) the quantity suppliers are willing and able to supply
increases.
A new toy at Christmas time... price increases, and there are more of the certain toy to buy.
As a good's price decreases, (goes down) the quantity suppliers are willing and able to
supply decreases.
Apple's iPhone 8.... price drops, Apple does not make too many more, supply drops
Quantity supplied is usually directly related to its price
So... If the price increases, supply increases... vice versa If the price decreases, supply
decreases.
Producers supply more at a higher price because selling a higher quantity at a higher
prices increases 
revenue
.
 
Supply or
Demand
 schedule
 
Displays the quantity of
the product supplied or
demanded at each price
 
 Supply curves
 
Graphic representation
of the quantities of a
good supplied at various
prices.
Low price, low quantity
of the item
High price, high supply
of the item
 
Factors that determine SUPPLY
 
•P.I.G. T.O.E.S”
•– P roductivity (workers, machines, and/or assembly)
•– I nputs (Change in the price of materials needed to make the
•good)
•– G overnment Actions (Subsidies, Taxes, and Regulations)
•– T echnology (Improvements in machines and production)
•– O utputs (Price changes in other products)
•– E xpectations (outlook of the future)
•– S ize of Industry (Number of companies in the industry)
 
Law of Demand
 
If all other factors remain equal, the higher the price of a good, the less people will demand that
good
The higher the price the lower the quantity demanded
As the price of a good goes up, so does the opportunity cost of buying that good.
People will naturally avoid buying a product that will force them to not buy something else they
value more.
Higher prices drive potential consumers from the market if their resources do not allow them to
even consider a purchase.
Will you buy the $1,00 iPhone 11 or spend that $1,000 elsewhere?
At a high price, there is not much demand for the product
 
Demand Curve
 
High price, low demand
Low price, more
demand
 
Factors which determine DEMAND
 
 “P.O.I.N.T.”
•– P rice of other goods (substitute or complementary)
•– O utlook (consumer expectation of the future)
•– I ncome (normal goods versus inferior goods)
•– N umber of potential customers (pop.of market)
•– T aste (fads or trends)
 
Supply and Demand
Relationship
 
Excess Supply = 
Surplus
If price is too high, excess supply will be created
 
Excess Demand = 
Shortage
Price is too low – too many consumers want the
good
 
Law of Supply and
Demand
a quick view
 
 
Equilibrium
Price
 
Supply and demand are
equal
Allocation of goods is at
its most efficient
Sellers are selling all the
goods they produced and
consumers are getting all
the goods that they
demand
 
Why would
a supply
curve
"shift"?
Causes of
a Supply
Shift
 
Why would
a supply
curve
"shift"?
Causes of
a Supply
Shift
 
Causes of Demand Shifts
 
Price right?
Yes
Higher price, less demand
Lower price, more demand
All can cause a sift in the demand curve
BUT...... There are other variables other than price
If the price stays constant......
 
Causes of
Demand
Shift with a
Constant
Price
(Market
variables
other than
price)
 
Change in taste & preference – things go out
of style
Change in the number of consumers –
change in population in an area
Change in price in related goods
Complementary product – new iPhone 11 cover
for new iPhone 11; old covers decrease because of
a new complementary product to the new product
Supplementary product – Roku stick (cheaper)
instead of Amazon stick (more expensive)
 
Causes of
Demand
Shift with a
Constant
Price
(Market
variables
other than
price)
 
Change in income levels
I get paid more; I want a Lexus instead of a
Honda
I lose my job; I eat at the diner instead of the steak
house
Change in expectations
Freeze in Florida wipes out orange crop; I'm
buying orange juice now before the price increases
 
Elasticity
(think rubber band)
 
Remember Opportunity costs?
How does it relate to Elasticity?
 
Cost of a good or service
Buying a prom dress $1,000
What can I do with the $$ instead of buying that Prom Dress?
Cruise on Carnival
Goods or Services may not be purchased because of a less of a necessity which
then makes the opportunity costs too high.
TV price is too high, do not need a new TV, could use one but... I need that $$ to buy food
Goods or services which are not as much as a necessity are more affected by
elasticity and high opportunity costs
 
 
 
Crash Course: Supply and Demand
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Explore the fundamental concepts of supply and demand in economics, including the laws that govern them. Learn about the characteristics of free markets, the factors that determine supply, and how prices influence the quantities supplied and demanded. Gain insights into the law of supply and law of demand, supply and demand schedules, and the impact of various factors on market dynamics.


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  1. Economics Unit 2 Supply and Demand Law of Supply Law of Demand

  2. Remember Market Systems? - Market Economy What are the characteristics of Free Markets? PRIVATE PROPERTY PROFIT MOTIVE FREE ENTERPRISE

  3. What is Supply and Demand? Supply How much the market can offer At $1,000 per iPhone, Apple can supply 50,000 iPhone 11s. Demand How much (quantity) of a product or service is desired by buyers (consumers) Willing and able to purchase a product at a particular price How many iPhone 11s does the public want at $1,000?

  4. Law of Supply As a good's price increases (goes up) the quantity suppliers are willing and able to supply increases. A new toy at Christmas time... price increases, and there are more of the certain toy to buy. As a good's price decreases, (goes down) the quantity suppliers are willing and able to supply decreases. Apple's iPhone 8.... price drops, Apple does not make too many more, supply drops Quantity supplied is usually directly related to its price So... If the price increases, supply increases... vice versa If the price decreases, supply decreases. Producers supply more at a higher price because selling a higher quantity at a higher prices increases revenue.

  5. Supply or Demand schedule Displays the quantity of the product supplied or demanded at each price

  6. Supply curves Graphic representation of the quantities of a good supplied at various prices. Low price, low quantity of the item High price, high supply of the item

  7. Factors that determine SUPPLY P.I.G. T.O.E.S P roductivity (workers, machines, and/or assembly) I nputs (Change in the price of materials needed to make the good) G overnment Actions (Subsidies, Taxes, and Regulations) T echnology (Improvements in machines and production) O utputs (Price changes in other products) E xpectations (outlook of the future) S ize of Industry (Number of companies in the industry)

  8. Law of Demand If all other factors remain equal, the higher the price of a good, the less people will demand that good The higher the price the lower the quantity demanded As the price of a good goes up, so does the opportunity cost of buying that good. People will naturally avoid buying a product that will force them to not buy something else they value more. Higher prices drive potential consumers from the market if their resources do not allow them to even consider a purchase. Will you buy the $1,00 iPhone 11 or spend that $1,000 elsewhere? At a high price, there is not much demand for the product

  9. Demand Curve High price, low demand Low price, more demand

  10. Factors which determine DEMAND P.O.I.N.T. P rice of other goods (substitute or complementary) O utlook (consumer expectation of the future) I ncome (normal goods versus inferior goods) N umber of potential customers (pop.of market) T aste (fads or trends)

  11. Supply and Demand Relationship Excess Supply = Surplus If price is too high, excess supply will be created Excess Demand = Shortage Price is too low too many consumers want the good

  12. Law of Supply and Demand a quick view

  13. Equilibrium Price Supply and demand are equal Allocation of goods is at its most efficient Sellers are selling all the goods they produced and consumers are getting all the goods that they demand

  14. Change in the price of resources costs go down, price goes down to capture a larger market OR costs go up, price goes up to maintain profit Why would a supply curve "shift"? Causes of a Supply Shift Change in the number of producers more producers = more supply or less producers = less supply Change in technology better technology =more efficient production more supply

  15. Why would a supply curve "shift"? Causes of a Supply Shift Government Intervention new taxes (decrease in supply), subsides (increase in supply), regulations will affect supply Change in Expectations producers change their decision on what to produce based on expectations of change. Ex: more winter jackets ahead of winter-time.

  16. Causes of Demand Shifts Price right? Yes Higher price, less demand Lower price, more demand All can cause a sift in the demand curve BUT...... There are other variables other than price If the price stays constant......

  17. Change in taste & preference things go out of style Change in the number of consumers change in population in an area Change in price in related goods Complementary product new iPhone 11 cover for new iPhone 11; old covers decrease because of a new complementary product to the new product Supplementary product Roku stick (cheaper) instead of Amazon stick (more expensive) Causes of Demand Shift with a Constant Price (Market variables other than price)

  18. Causes of Demand Shift with a Constant Price (Market variables other than price) Change in income levels I get paid more; I want a Lexus instead of a Honda I lose my job; I eat at the diner instead of the steak house Change in expectations Freeze in Florida wipes out orange crop; I'm buying orange juice now before the price increases

  19. Elasticity (think rubber band) Inelastic good or service change in price may not throw off the quantity demanded or supplied of the product Common definition degree to which a demand or supply curve reacts to a change in price Highly elastic slight change in price leads to a sharp in quantity demanded or supplied Usually more of a day to day necessity god or service (milk) Product is available on the market but may not be needed daily (TV)

  20. Remember Opportunity costs? How does it relate to Elasticity? Cost of a good or service Buying a prom dress $1,000 What can I do with the $$ instead of buying that Prom Dress? Cruise on Carnival Goods or Services may not be purchased because of a less of a necessity which then makes the opportunity costs too high. TV price is too high, do not need a new TV, could use one but... I need that $$ to buy food Goods or services which are not as much as a necessity are more affected by elasticity and high opportunity costs

  21. Crash Course: Supply and Demand

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