Laws of Demand

In a market who is the consumer? 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 As price goes up, quantity demanded goes down Price D1 Quantity

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 Price D2 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 Price D2 D2 D1 D1 Quantity Quantity 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) D1 D2 Q

Bad Weather (for product) Effect on Demand Demand Decreases (shift left) P D1 D2 Q

Price of Complementary Good Decreases (ex: peanut butter & jelly) Effect on Demand Demand Increases (shift right) D1 D2 Q Peanut Butter

Price of Substitute Good Decreases (ex: Pepsi & Coca-Cola) Effect on Demand Demand Decreases (shift left) D1 D2 Q Pepsi

Complementary vs. Substitute Can 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

Now you are the producer Think about the business you are creating 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 S1 Q

Quantity Supplied The quantity of goods a producer is willing and able to sell at a set price at a particular time. P S1 Q

Supply Schedule A list of quantities supplied by a provider at certain prices Price Quantity $.50 1 $1.00 2 $1.50 3 $2.00 4 $2.50 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 S1 S2 Quantity

Illustrate a Decrease in Supply Price S2 S1 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 S1 S2 Q

Number of Suppliers Increases Effect on Supply Supply Increases (shift right) Example: Basketballs Dicks Sporting Goods Sports Authority Footlocker P S1 S2 Q

Weather is bad for product Effect on Supply Supply Decreases (shift left) Example A hurricane during the orange growing season P S1 Q

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

-number of suppliers changes -Supply Decreases 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

The price of gas decreases. What is the impact of trucking companies? 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