Objective: Identify how supply and demand impact price

II. Supply and Demand Demand -desire to own something and the ability to pay for it Law of demand- When a good’s price is lower, consumers will buy more of it. When the price is higher, consumers will buy less of it.

Draw a Demand Curve

Price Profits Price Profits Supply -the amount of goods available Law of supply- (Think like a producer) The higher the price, the larger the quantity produced. As price falls, quantity of supply falls. Price Profits Price Profits

Draw a Supply Curve

Equilibrium Price -When quantity demand and quantity supplied are at the same price Equilibrium is ideal for producers because more of their product gets sold Equilibrium is ideal for consumers because the right amount of product is available for the people who want it

Identify Equilibrium Price

Equilibrium Graph Practice Graph the following Supply and Demand Schedules Identify the equilibrium price

Surplus -If supply exceeds demand When price is too high, goods and services are limited by demand

Shortage – if demand exceeds supply, there will be a shortage Price is too low so goods and services exchanged are limited by supply

Identify Shortage & Surplus

III. Changes in Demand A. Change in the quantity demanded due to a price change occurs ALONG the demand curve An increase in the Price of Cupcakes from $3 to $4 will lead to a decrease in the Quantity Demanded of Widgets from 6 to 4.

B. Demand Curves can also shift in response to the following factors: (BITER: factors that shift the demand curve) 1. Buyers (# of): changes in the number of consumers 2. Income: changes in consumers’ income 3. Tastes: changes in preference or popularity of product/ service 4. Expectations: changes in what consumers expect to happen in the future 5. Related goods: compliments and substitutes

Prices of related goods affect on demand a. Substitute goods a substitute is a product that can be used in the place of another. -The price of the substitute good and demand for the other good are directly related -For example, Coke Price Pepsi Demand b. Complementary goods a compliment is a good that goes well with another good. -When goods are complements, there is an inverse relationship between the price of one and the demand for the other -For example, Peanut Butter Price Jam Demand

Changes in Demand Several factors will change the demand for the good (shift the entire demand curve) As an example, suppose consumer income increases. The demand for Widgets at all prices will increase.

Changes in Demand Demand will also decrease due to changes in factors other than price. As an example, suppose Widgets become less popular to own.

IV. Changes in Supply A. Change in the quantity supplied due to a price change occurs ALONG the supply curve If the price of Cupcakes fell to $2, then the Quantity Supplied would fall to 4 Cupcakes.

Changes in Supply B. Supply Curves can also shift in response to the following factors: (STONER: factors that shift the supply curve) 1. Subsidies and taxes: government subsides encourage production, while taxes discourage production 2. Technology: improvements in production increase ability of firms to supply 3. Other goods: businesses consider the price of goods they could be producing 4. Number of sellers: how many firms are in the market 5. Expectations: businesses consider future prices and economic conditions 6. Resource costs: cost to purchase factors of production will influence business decisions

Changes in Supply Supply can also decrease due to factors other than a change in price. As an example, suppose that a large number of Widget producers go out of business, decreasing the number of suppliers.

Changes in Supply C. Changes in any of the factors other than price causes the supply curve to shift either: 1. Decrease in Supply shifts to the Left (Less supplied at each price) OR 2. Increase in Supply shifts to the Right (More supplied at each price)

Shifts in Supply & Demand

BITER – Demand Shifters Buyers (number of) Income changing Tastes changing Expectations of the consumer Related goods (Compliments and Substitutes)

Compliments & Substitutes Substitute – Lays Chips or Ruffles? Coke or Pepsi? Starbucks or Caribou Coffee? Compliments – Peanut Butter & Jelly. Hotdogs & Hotdog Buns. Ketchup and Fires.

STONER – Supply Shifters Subsidies and Taxes Technology Other goods Number of sellers Expectations of the business Resource Costs

Demand Shift Practice The Patriots win the 2015 Super Bowl. What will this do to the demand of Patriots memorabilia?

Demand Shift Practice The price of toothpaste skyrockets. What will this do to the demand of toothbrushes?

Supply Shift Practice The US Gov’t approves a subsidy to aid Cotton farmers. What will this do to the supply of Haines cotton t-shirts?

Supply Shift Practice Summer is rapidly approaching. How will the CEO of Coppertone respond regarding the supply of sunscreen?

Shifts in S&D of Jelly Beans Use your STONER & BITER acronyms to determine whether the scenario would cause a shift in the demand or supply curve Is it an increase or a decrease?

Question What exchange occurs in the Factor Market?

Answer Businesses buy factors of production from households in exchange for income

Question What exchange occurs in the Product Market?

Answer Households use their earned income to buy finished goods and services from businesses

Question What type of economy does the US have? Why do we consider it this?

Answer Mixed – individuals, business and government determine what gets produced

Question What is the law of demand?

Answer The cheaper the item the more consumers will buy of it

Question What does it mean when we achieve equilibrium?

Answer Supply and demand meet each other at the same price

Question What is the law of supply

Answer When a good can be sold at a higher price producers will supply more of it

Question What does the S and T stand for in STONER?

Answer Subsidies/taxes Technology

Question What does the E and R stand for in BITER?

Answer Expectations of the consumer Related goods

Question What is an example of substitute goods?

Answer Ask Mrs. Patterson

Question What is an example of complimentary goods?

Question What does the O and N stand for in STONER?

Question What does the B and I stand for in BITER?

Answer Buyers (number of) Income changes

Question A change in price causes a shift of the supply or demand curve?

Answer Neither. A change in price only causes movement along the curve

Question Where do we locate a shortage and surplus on a S&D graph?

Question Shift in supply or demand? A freeze in Brazil kills a large part of the world’s coffee crop

Answer Supply – Resource Costs

Question The price of tea, substitute for coffee, decreases

Answer Demand – Related Goods

Question Doctors say that coffee may help cure migraine headaches

Answer Demand – Expectations of the Consumer

Question The economy takes a dive and incomes drop to record laws.

Answer Demand – change in income

Question Dunn Brothers opens 50 additional stores nationwide

Answer Supply – Number of Sellers

Warm Up – See what YOU can do You will work independently Draw the Circular Flow of Income Answer the accompanying questions

Let’s Take a Closer Look at Supply and Demand Shifts

Analyzing Demand Headlines Take out your “Analyzing Demand and Supply Headlines” handout Let’s recall BITER These practice questions will help you prepare for your quiz tomorrow 

Analyzing Supply Headlines Let’s move to Supply Shifters Let’s recall STONER With someone sitting next to you see if you can take on these without me

Review What is the difference between stocks, bonds and mutual funds? Explain what is happening in graphs B and C

Answers Stock – owning a share of a company. Risky form of investment, but can have very high returns Bond – providing a loan to a company or government for a certain amount of time where you earn interest. Low risk –low return Mutual Fund – pooling your money with other investors to buy a collection of stocks and bonds. Less risky with medium returns Graph B – Supply shift: Decrease Graph C – Demand Shift: Increase