No Warmup Take a handout from the front and have a seat Supply and Demand Unit 6 Demand Demand is the desire to own something and the ability to pay for it Law of demand says that when a goods price is lower consumers will buy more of it higher less ID: 764709
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No Warm-up Take a handout from the front and have a seat.
Supply and Demand Unit 6
Demand Demand is the desire to own something and the ability to pay for it. Law of demand says that when a good’s price is lower, consumers will buy more of it; higher, less. Demand Curve is the graphic representation of a demand schedule. Vertical axis (prices) and horizontal (quantities demanded at those prices).
Demand Schedule
Types of Goods Normal good is a good consumers demand more of when their incomes increase. These are most items we purchase. Inferior good is a good that, when an increase in income happens, the demand for these goods falls. Used cars, mac & cheese, etc .
Types of Goods Complement : a good that is usually bought in conjunction with another good. Substitute : a good that is bought instead of another similar good
Supply Supply is the amount of a good available, and the relationship between price and quantity supplied. The law of supply is the idea that the higher the price, the larger the quantity produced. Supply curve is the graph of a supply schedule. Vertical axis is the price, and horizontal is quantity of good SUPPLIED.
Supply Schedule
Things that affect supply: Fixed cost / variable cost / total cost Fixed costs do not change no matter how many goods are produced( (rent, repairs, taxes). Variable costs rise and fall based on quantity produced (labor, raw materials). Total cost is a combination of these two costs. Marginal cost: The additional cost of producing one more unit of a good
10 7 S P Q o $5 4 3 2 1 2 4 6 8 10 12 14 16 P Q D $5 4 3 2 1 2,000 4,000 7,000 11,000 16,000 $5 4 3 2 1 12,000 10,000 7,000 4,000 1,000 D P Q S Price of Corn Quantity of Corn CORN MARKET CORN MARKET Equilibrium DEMAND & SUPPLY
11 Market Equilibrium Market equilibrium is a situation in which the quantity of a product demanded equals the quantity supplied
Other supply terms: Supply shock is when a sudden shortage of a good, like gasoline, because suppliers can no longer meet the needs of consumers. Rationing is dividing up goods / services using criteria other than price. Spillover costs are production costs not paid by seller but by buyer or third party, such as in the case of pollution from a factory.
Warm-up What is an example of a complementary good for hamburger patties? What would be a substitute? What is it called when the quantity demanded is equal to the quantity supply?Draw and label a supply and demand graph with the following things: supply curve, demand curve, quantity axis, and price axis.13
Changes in supply and demand Price ceiling is a government-imposed maximum price that can be legally charged for a good Price floor minimum price set by the government for a good or service Surplus happens when quantity supplied exceeds quantity demanded at a given price Shortage is when there is more demand for an item than supply of that item
Notes: Changes to Supply and Demand curves Movement along the curve the only thing that can cause this is an immediate change in price. A shift of the curve anything else will probably cause the curve to shift. 16
17 Market Effects of Changes in Demand A change in demand (shift of the curve) is a change in the amount of a good demanded resulting from a change in something other than the price of the good. An increase in demand is represented graphically by a shift of the demand curve to the right.
18 Causes of an Increase in Demand An increase in demand can occur for several reasons: Income increases Substitute become less popular Complements become more popular Consumer Tastes change
19 Market Effects of an Increase in Demand At the initial price ($8), the shift of the demand curve causes excess quantity demanded. Equilibrium is restored at point n, with a higher equilibrium price and a larger equilibrium quantity.
20 Causes of a Decrease in Demand Income decreases Substitutes become more popular Complements become less popular Consumer Tastes change A decrease in demand can occur for several reasons:
21 Market Effects of a Decrease in Demand A decrease in demand shifts the demand curve to the left. At the initial price ($8), there is now an excess supply. Equilibrium is restored at point n, with a lower equilibrium price ($6) and a smaller equilibrium quantity (20,000 pizzas).
22 Market Effects of Changes in Supply A change in supply (shift of the curve) is a change in the amount of a good supplied resulting from a change in something other than the price of the good. An increase in supply is represented graphically by a shift of the supply curve to the right.
23 Market Effects of Changes in Demand A decrease in supply is represented graphically by a shift of the supply curve to the left.
24 Causes of an Increase in Supply Price of Resources decreases Technology improves Competition increases Future Expectations grow Government Subsidies increase An increase in supply shifts the supply curve to the right when:
25 Market Effects of an Increase in Supply At the initial price ($8), the shift of the supply curve causes excess quantity supplied. Equilibrium is restored at point n, with a lower equilibrium price and a larger equilibrium quantity.
26 Causes of a Decrease in Supply Price of Resources goes up Technology gets more expensive Competition decreases Future Expectations lower Government Regulations and Taxes increase A decrease in supply shifts the supply curve to the left when:
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Things that affect supply: Subsidy : a government payment that supports a business or market Excise tax: governments can reduce the supply of some good by placing an excise tax -- the tax on the production or sale of a good -- on them. (Cigarettes, alcohol)
30 Market Effects of a Decrease in Supply At the initial price ($8), the decrease in supply curve causes excess quantity demanded. Equilibrium is restored at point n, with a higher equilibrium price and a smaller equilibrium quantity.
31 Market Effects of Changes in Demand or Supply ∆ in Price ∆ in Quantity ∆ in Demand or Supply Increase Increase Increase in demand Decrease Decrease Decrease in demand Decrease Increase Increase in supply Increase Decrease Decrease in supply
Types of Elasticity Inelastic demand defines a good that you will keep buying despite a price increase. If elasticity is less than 1, it is inelastic. Elastic demand defines a drastic reaction and decrease in buying a good after only a small price increase. If elasticity is greater than 1, demand is elastic. Unitary elastic : If elasticity is exactly 1, it is unitary elastic.