7.5 Supply ad Demand

Supply & Demand Demand schedule Demand Curve Supply schedule Supply curve Equilibrium/Market price

Demand In the United States, the forces of supply and demand work together to set prices. Demand is the desire, willingness, and ability to buy a good or service. For demand to exist, a consumer must want a good or service, be willing to buy it, and have the resources to buy it.

Demand Schedule A demand schedule is a table that lists the various quantities of a product or service that someone is willing to buy over a range of possible prices.

Demand Curve A demand schedule can be shown as points on a graph. The graph lists prices on the vertical axis and quantities on the horizontal axis. Each point on the graph shows how many units of the product or service an individual will buy at a particular price. The demand curve is the line that connects these points.

Law of Demand The demand curve slopes downward. This shows that people are normally willing to buy less of a product at a high price and more at a low price. According to the law of demand, quantity demanded and price move in opposite directions. Suppose the price of a movie ticket rises by $2. What does the law of demand predict will happen? Explain.

Answer!!! The law of demand says that price and quantity demanded move in opposite directions. Therefore, when the price of movie tickets rises, the law of demand predicts that people will buy fewer tickets. Mr. McInnis is less willing to buy a ticket to the new Bond movie when tickets are $10.00. Since DEMAND was still high, he paid it anyway.

Supply Schedule The chart that shows the quantity of a product produced at a particular price.

When each of these points is graphed and then connected by a curve. Supply Curve When each of these points is graphed and then connected by a curve.

Law of Supply The law of supply states that when the price of a product goes up, the quantity of the product goes up. The price of a product will continue to change until supply and demand are equal.

Equilibrium Price When supply and demand are equal, the price is called the equilibrium price. Supply and Demand are equal! It is also called the market price because the price is determined by the market (people who buy stuff).

Influences on Supply/Demand Personal income Disposable income Substitute goods Complimentary goods

Personal and Disposable Income Personal Income – before buying other goods and services, personal income must 1st pay for necessities of life, such as food, clothing, shelter, clothing, and transportation. Disposable Income – Disposable income is the amount of income left after paying for necessities. Disposable income is the amount of money available for savings, entertainment, and more expensive products.

Substitute goods Competing products are called substitutes because consumers can use one in place of the other. A change in the price of one good can cause the demand for another good to change. More people might by a another good because it is similar and cheaper.

Example of Substitute Goods with Sneakers

Complimentary goods Complements are products that are used together. A change in the price of one good can cause the demand for another good to change. If the price of DVD players increases, what would you expect to happen to the demand for DVDs? Explain.

Answer!!! DVDs and DVD players are complements. The demand for one should move in the opposite direction as the price of the other. Therefore, a rise in the price of DVD players will probably result in a drop in the number of DVDs demanded.

Examples of Complement Goods