Supply and Demand

Law of Demand As the price of a good/service falls, consumers will buy… MORE As the price of a good/service rises, consumers will buy… LESS A demand curve shows the quantity of a product consumers will buy at each price. PRICE Demand Curve QUANTITY D

Law of Supply As the price of a good/service rises, producers will supply… MORE As the price of a good/service falls, producers will supply… LESS A supply curve shows the quantity of a product suppliers will sell at each price. PRICE Supply Curve QUANTITY S

Equilibrium Price Price is determined by a compromise between what buyers are willing to pay and sellers are willing to accept for the product. EQUILIBRIUM PRICE – where supply meets demand PRICE Supply and Demand QUANTITY D Equilibrium Price  S

What if the price is too high/low? What if a seller sets the price too low? More will be demanded than supplied  SHORTAGE How do you fix it? What if a seller sets the price too high? More will be supplied than demanded  SURPLUS PRICE Supply and Demand QUANTITY D SURPLUS Raise Prices S SHORTAGE Lower Prices

SUPPLY AND DEMAND SHIFTS INCREASE…. DECREASE…. RIGHT! LEFT!

Changes in Demand Income Changes When people have more money, demand goes… UP (increases) When people have less money, demand goes… DOWN (decreases) PRICE Demand Curve QUANTITY D1 D2 D2

Changes in Demand 2) Changes in Preference People like mp3s more than CDs. Demand for CDs goes… DOWN (decreases) Demand for mp3s goes… UP (increases) PRICE Demand Curve QUANTITY D1 D2 D2

Changes in Demand 3) Substitute Goods – goods that can be used in place of other goods If the price of the original good goes up, demand for the substitute goes… UP (increases) If the price of the original good goes down, demand for the substitute goes… DOWN (decreases) PRICE Demand Curve QUANTITY D1 D2 D2

Changes in Demand 4) Complementary Goods – goods used with other goods. You must have one to use the other. If Xbox prices go up, demand for Xbox games will go… DOWN (decreases) If Xbox prices go down, demand for games will go… UP (increases) PRICE Demand Curve QUANTITY D1 D2 D2

Changes in Demand 5) Changes in population If there are more consumers, demand will go… UP (increases) If there are less consumers, demand will go… DOWN (decreases) PRICE Demand Curve QUANTITY D1 D2 D2

Changes in Demand D1 D2 Price went up S1 Quantity went up PRICE

Changes in Demand D1 D2 Price went down S1 Quantity went down PRICE

Elasticity of Demand How much will a change in price affect how much people demand the product? Elastic Goods: When prices change, demand changes (Ex: candy, games, non-essential items) Inelastic Goods: When prices change, demand stays about the same (Ex: water, bread, necessities) PRICE QUANTITY D PRICE QUANTITY D

Changes in Supply Production Costs When the resources cost more, you will supply… LESS (decreases) When the resources cost less, you will supply… MORE (increases) PRICE Demand Curve QUANTITY S2 S1 S2

Changes in Supply 2) New Technology If there is a new machine that does work faster, supply will go… UP (increases) PRICE Demand Curve QUANTITY S1 S2

Changes in Supply 3) Change in the number of Producers If more companies start that type of business, supply will go… UP (increases) If companies start going out of business, supply will go… DOWN (decreases) PRICE Demand Curve QUANTITY S2 S1 S2

Changes in Supply D1 Price went down Quantity went up S1 S2 PRICE

Changes in Supply D1 Price went up S2 S1 Quantity went down PRICE