Law of Demand ~ the amount of a product people will buy at different prices 1000 20003000 $20 $18 $16 $14 $12 $10 $8 $6 Demand Curve (D)

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Presentation transcript:

Law of Demand ~ the amount of a product people will buy at different prices $20 $18 $16 $14 $12 $10 $8 $6 Demand Curve (D)

Law of Supply ~ the amount of a product producers will sell at different prices Producers want to make a profit for their effort. Profit is the earnings left over after all expenses have been paid. Let’s say CD’s cost $5 to produce.

$20 $18 $16 $14 $12 $10 $8 $ (D) Producers will want to supply as many CD’s as they can when the price is high, because they make a good profit, and fewer CD’s when the price is low, because they make less profit. Supply curve (S)

$20 $18 $16 $14 $12 $10 $8 $ (D) (S) What is the perfect price for CD’s? At what price will we make the most money?

$20 $18 $16 $14 $12 $10 $8 $ (D) (S) Example A. Sell them for $20. Surplus Supply: 3000 x $5 = $15,000 Demand: 1000 x $20 = $20,000 $20,000-$15,000 = $5,000 profit

$20 $18 $16 $14 $12 $10 $8 $ (D) (S) Example B. Sell them for $6. Supply: 1000 x $5 = $5,000 Demand: 1000 x $6 = $6,000 $6,000-$5,000 = $1,000 profit Shortage

$20 $18 $16 $14 $12 $10 $8 $ (D) (S) Example C. Sell them for $13. At what price do we sell every CD that we produce? Supply: 2000 x $5 = $10,000 Demand: 2000 x $13 = $26,000 $26,000-$10,000 = $16,000 profit The place where supply and demand are equal is called the Market Price or Equilibrium Price.