Supply and demand

The law of supply and demand When you add value to a product, you increase demand

The law of supply and demand When demand is high, manufacturers then need to make products in larger quantities This then reduces the unit cost because fixed costs (ie. Rent) remain the same whether the company makes 5,000 or 50,000 items Then the company can sell the unit at a lower price in the hopes of then selling MORE units to make more money

The hula hoop Don’t write Video In 1958, Wham-O Inc began marketing the Hula Hoop in the US. Sales skyrocketed the first year (+25M sold in first few months and +100M in first year). In 1994, this video from The Hudsucker Proxy portrays a fictional account for the demand for Hula Hoops as they were introduced to the market

Supply and demand Don’t write Why does a business owner lower the price of products not selling quickly? When would a business owner have the incentive to increase the price? What does a higher price than before communicate to the consumer about the demand for that product?

Silly bandz Don’t write Today, Silly Bandz (made by Brainchild Products) have taken off in sales since 2008. They have gone from shipping 20 boxes a day to over 1,500. The rise in demand has not yet been accompanied by a rise in price. Instead, they are responding by increasing their production of Silly Bandz Video Article

Silly bandz Don’t write What information is being communicated to the business owner by the $5 price for the Silly Bandz? What can the business do to ensure that Silly Bandz are allocated to those consumers, which value them the most?

demand The desire of buyers for a G or S Don’t write The desire of buyers for a G or S But what determines market demand?

The law of demand As the price of a G or S that consumers are willing and able to buy during a certain time period rises (or falls), the quantity of that G or S demanded falls (or rises)

What determines demand? Income Expectations Other goods Consumers in the market Other???

Inelastic demand If demand for the product is not affected by a change in price, the product is said to have “inelastic demand” People will buy them no matter what the price is because they “need” the product Any examples?

The law of supply As the price of a G or S that producers are willing and able to offer for sale during a certain time period rises (or falls), the quantity of that good falls (or rises)

supply Equilibrium The price at which the quantity demanded by buyers equals the quantity supplied by the sellers

supply Shortage Surplus Quantity demanded exceeds the quantity supplied Happens when the price is below the market equilibrium price Surplus When the quantity supplied exceeds the quantity demanded Happens because the price is above the market equilibrium price

Inelastic supply If the supply for a product is not affected by a change in price, it is called “inelastic supply” If a product is difficult to produce or difficult to produce in mass supply, it will have inelastic supply

homework Click on the following link (use full screen) and answer the questions on the hand out Could show up on a unit test – so do it!!!