Connection to Circular Flow Model Do individuals supply or demand Do business supply or demand Who demands in the product market Who supplies in the product market 2 3 I am willing to sell several ID: 797558
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Slide1
Unit: Supply and Demand
1
Slide2Connection to Circular Flow Model
Do individuals supply or demand?
Do business supply or demand?
Who demands in the product market?
Who supplies in the product market?
2
Slide33
Slide4I am willing to sell several
in
AP Economics. How much will you pay?
Price
Quantity
Demanded
Demand Schedule
4
$1,000
$500
$200
$50
$5
$1
Slide5DEMAND
What is the
Law of Demand
?
All else being equal, quantity demanded of a good rises, as the price decreases.
5
What is
DEMAND
?
Demand is the quantities that a person or market is ready, willing and able to buy.(Ex. Bill Gates is able to purchase a Ferrari, but if he is NOT willing to buy one，Then he has NO demand for one)
Slide6LAW OF DEMAND
As Price Falls…
…Quantity Demanded Rises
As Price Rises…
…Quantity Demanded Falls
Price
Quantity Demanded
6
There is an
INVERSE
relationship between PRICE and QUANTITY DEMANDED
Slide7Demand worksheet
7
If the price of CDs is $10, how many will people buy? _______
If the price of CDs is $20, how many will people buy? _______
If the quantity of CDs sold is 200, what is the price? _____
If the quantity of CDs sold is 100, what is the price? ______
Demand Schedule for CDs at School
Quantity Demanded
(monthly)
Price
(dollars)30025020015010050
5
10
1520
25
30
250
150
$15
$25
Slide8How many apples will students buy at 30 cents?
How many apples will students buy at 80 cents?
What effect does the price seem to have on the quantity of CDs and apples sold?
Calculate total revenue (P X Q):
If the price of apples is 30 cents,
If 100 apples are sold,
8
Demand Schedule for Apples at School
Quantity Demanded
(weekly)
Price(cents)40035025015010050
10
20
30
50
80
100
Demand worksheet
250
100
$75
$80
Slide99
Demand Schedule for Boba
at School
Quantity Demanded
(monthly)
Price
(dollars)
400
200
15050251012345
6
Quiz Time
What is the change in the quantity demanded if price increases from $2 to $3?
What is the quantity demanded if the price is $6?
What is the price if the quantity demanded is 150?
If the price $7 then the
quantity demanded
is?
Slide10Example of Supply
You
own a
scrub brush and you are willing to clean toilets.
How many toilets will you clean at these prices?
Price per toilet clean
Quantity
Supplied
Supply Schedule
10
$1
$5
$20
$50
$100
$1000
Slide11Supply
What is
SUPPLY
?
Supply is the quantities of a good that sellers or firms are willing and able to produce and sell (now).
What is the
Law of Supply
?
All else being equal, quantity supplied of a good rises, as the price increases.
Why? Because, at higher prices profit seeking firms have an incentive to produce more. 11
Slide1212
Slide135 Shifters of Supply
13
Subsidies
It is government payment to support business or market. Subsidies cause the supply of a good to increase.
Input Prices
Technology
Expectations
Taxes & Subsidies
Number of Sellers
Changes in PRICE
Stay on the Line
Slide14Why does the Law of Demand occur?
The law of demand is the result of three separate behavior patterns that overlap:
The Substitution effect
The Income effect
The Law of Diminishing Marginal Utility
We will define and explain each…
14
Slide15We buy goods because we get utility from them
The law of diminishing marginal utility
states that as you consume more units of any good, the additional satisfaction from each additional unit will eventually start to decrease
In other words, the more you buy of any good the less satisfaction you get from each new unit.
Discussion Questions:
What does this have to do with the Law of Demand?
How does this affect the pricing of businesses?
15
Why does the Law of Demand occur?
Slide16If the price goes up for a product, consumer buy less of that product and more of another substitute product, and vice versa.
1. The Substitution Effect
16
Why does the Law of Demand occur?
Slide17If the price goes down for a product, the purchasing power increases for consumers
allowing them to purchase more.
2. The Income Effect
17
Why does the Law of Demand occur?
Slide18We buy goods because we get utility from them
The law of diminishing marginal utility
states that as you consume more units of any same good, the additional satisfaction from each additional unit will eventually start to decrease
In other words, the more you buy of any good the less satisfaction you get from each new unit.
Discussion Questions:
How does it relate to the Law of Demand?
How does this affect the pricing of businesses?
18
Why does the Law of Demand occur?
Slide19Change
N/A
$54
$33
$15
$10
$5
Can you see the Law of Diminishing Marginal Utility in Disneyland
’
s pricing strategy?