Transcript
Laws of Demand
Goal 8
Discuss
What is a market? In a market who is the
consumer? How does the price of a
good affect the consumer?
Market
An arrangement that allows buyers and sellers to exchange things
Markets exist because no one is self sufficient and no one produces all we require to satisfy all our needs and wants.
Demand
Description› The quantities of a particular good or service consumers are willing and able to buy at different possible prices at a particular time
Demand Illustration p.1 sec. 1
Price
Quantity
As price goes up, quantity demanded goes down
D1
Discuss
How does demand and “want” or “desire” differ?
You may want or desire a new car or a closet full of clothes, but you demand these things only when you are willing and able to buy them.
Quantity Demand
The quantities of a particular good or service consumers are willing and able to buy at set prices at a particular time
Quantity Demand Illustration
D2
Price
Quantity
Demand Schedule
How much people are going to buy at the various prices.
Ex. The price of pizza
Price Quantity
$.50
$1.00
$1.50
$2.00
$2.50
Law of Demand
As price goes up quantity goes down
As price goes down quantity goes up
People buy less of something at higher prices than they do at lower prices.
ELASTIC DEMAND: demand that is very sensitive to a
change in price goods that one might stop buying
or cut back on as price increased (SUVs, Luxury items)**on a graph this demand curve will be FLAT
INELASTIC DEMAND
demand that is not very sensitive to a change in price
goods that you would buy at any price; there are few if any substitutes for these goods.
(milk, gas, prescription drugs) **on a graph this demand curve would be very steep.
Illustration of Decrease and Increase in Demand Decrease in Price Increase in Price
Price
Quantity
D1 D2
Quantity
Price
D1D2
The less you buy the more you will move to the left!
The Demand Curve
The Demand Curve slopes downward to the right because the consumer is willing and able to buy more gasoline at lower prices than at higher prices.
Scenario #1
Harris Teeter is advertising a sale on hot dog buns. What is the impact on the demand for hot dogs?
Scenario #2
Playstation 3, the newest video game console, hits stores. What is the impact on the demand for Xbox 360?
Scenario #3
The weatherman forecasts rain for the weekend in Charlotte. What is the impact on the demand for umbrellas?
Scenario #4
The N.C. General Assembly increases minimum wage to $7/hour. What is the impact on the demand for clothing?
Scenario #5
A snowy blizzard blows through Charlotte. What is the impact on the demand for snow boots?
Scenario #6
The price of MP3 players decreases dramatically due to new technology. What is the impact on the demand for portable CD players?
Scenario #7
Summertime is approaching. What is the impact on the demand for shorts?
Scenario #8
The price of hamburgers increases at Food Lion. What is the impact on the demand for French fries?
Changes in Demand
Reasons Demand can change
People’s Income Weather Complementary Goods Substitute Goods
What is a Complementary Good?
Complementary Good: Two goods that are usually consumed together (Hot Dogs & buns)
What is a Substitute Good?
Substitute Good: An acceptable replacement for a good (Playstation & Xbox)
People’s Income Increases
Effect on Demand
Demand Increases› (shift right)
P
Q
D1 D2
Bad Weather (for product)
Effect on Demand
Demand Decreases› (shift left)
P
Q
D1D2
Price of Complementary Good Decreases (ex: peanut butter & jelly)
Effect on Demand
Demand Increases› (shift right)
P
Q
D1 D2
Peanut Butter
Price of Substitute Good Decreases (ex: Pepsi & Coca-Cola)
Effect on Demand
Demand Decreases› (shift left)
P
Q
D1D2
Pepsi
Complementary vs. SubstituteCan YOU tell the difference????
Substitute
Complementary
Substitute
Complementary
Substitute
Substitute
Complementary
Elasticity of Demand
How much the quantity demanded will change if the price rises or falls.
Supply
Discuss
Now you are the producer Think about the business you are
creating Things are now going to reverse
Supply
Description› The quantity of goods a producer is willing
and able to sell at various prices at a particular time.
P
Q
S1
Quantity Supplied
› The quantity of goods a producer is willing and able to sell at a set price at a particular time.
P
Q
S1
Supply Schedule
A list of quantities supplied by a provider at certain prices
Price Quantity
$.50
$1.00
$1.50
$2.00
$2.50
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2
3
4
5
Law of Supply
As price goes up, quantity goes up As price goes down, quantity goes
down
More items will be offered for sale at a higher price than at a lower price
Illustrate an Increase in Supply
Price
Quantity
S1
S2
Illustrate a Decrease in Supply
S1S2
Price
Quantity
Supply Curve
The Supply Curve slopes upward and to the right because the producer is willing and able to sell more products at higher prices than at lower prices.
Change in Supply
Reasons for change in Supply
Cost of Inputs
Number of Suppliers
Weather
Costs of Inputs Decrease
Effect on Supply Supply Increases
› (shift right)› Spending less to
run the business
Examples› Land› Labor› Capital
P
Q
S1 S2
Number of Suppliers Increases
Effect on Supply Supply Increases
› (shift right)
Example: Basketballs› Dicks Sporting Goods› Sports Authority› Footlocker
P
Q
S1 S2
Weather is bad for product
Effect on Supply Supply Decreases
› (shift left)
Example› A hurricane during
the orange growing season
P
Q
S1S2
SO… can you apply this knowledge?
1) Together lets decide if the following scenarios are a change in…› Input costs› Number of suppliers› Weather
2) Then decide if it will› Increase supply› Decrease Supply
Situation #1
Dick’s Sporting Goods goes out of business. What is the impact on basketballs in Charlotte?
-number of suppliers changes-Supply Decreases
Situation #2
A hurricane destroys the orange groves in Florida. What is the impact on the supply of Orange Juice?
-weather changes-Supply Decreases
Situation #3
The price of gas decreases. What is the impact of trucking companies?
-cost of inputs change-Supply Increase
Situation #4
Nike moves their factory from the U.S. to China where workers are paid less. What is the impact on the supply of Nike’s shoes?
-change in input costs-Supply Increases
Supply and Demand together
Equilibrium: the point at which quantity demanded and quantity supplied are equal
At a point of equilibrium….
the price and quantity are balanced
the market for a good/service is stable
Disequilibrium: any price or quantity not at equilibrium
Excess Demand: when quantity demanded is more than quantity supplied
aka SHORTAGE!!!!
shortage
Excess Supply: when quantity supplied is more than quantity demanded
aka SURPLUS!!!!
surplus
A shift in the demand curve or the supply curve will result in a new equilibrium price.
Government Intervention in a Market Economy
Price Ceiling: a maximum price that can be legally charged for a good or service › (example: rent control)
Price Floor: a minimum price for a good or service› (example: minimum wage)
Inflation and Deflation
Inflation: a general increase in prices (over the years, prices rise and fall, but in the American economy, they have mostly risen)
Deflation: A substantial drop in the prices
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