THEORY OF DEMAND & SUPPLY

DEFINITION AND LAW OF DEMAND WHAT IS DEMAND? → DEMAND IS THE DESIRE TO OWN ANYTHING, THE ABILITY TO PAY FOR IT, AND THE WILLINGNESS TO PAY DURING A SPECIFIC PERIOD

DEMAND SCHEDULE AND DEMAND CURVE → A LIST SHOWING THE QUANTITY OF A GOOD THAT CONSUMERS WOULD CHOOSE TO PURCHASE AT DIFFERENCES PRICES, WITH ALL OTHER VARIABLES HELD CONSTANT DEMAND CURVE: → GRAPHICALLY SHOWS THE RELATIONSHIPS BETWEEN THE PRICE OF A GOOD AND THE QUANTITY WITH ALL DEMANDED, HOLDING CONSTANT ALL OTHER VARIABLES THAT INFLUENCES DEMAND.

DEFINITION AND LAW OF DEMAND → THE LAW OF DEMAND STATES THAT OTHER FACTORS BEING CONSTANT, PRICE AND QUANTITY OF DEMAND OF ANY GOOD AND SERVICE ARE INVERSELY RELATED TO EACH OTHER. WHEN THE PRICE OF THE PRODUCT INCREASES, THE DEMAND FOR THE SAME PRODUCT WILL FALL.

Guided Practice 1: let’s draw and graph a demand schedule & curve for pizza Price of pizza a $15 b $12 c $9 d $6 e $3 Quantity of pizza demanded (millions per week) 8 14 20 26 32

key: DEMAND SCHEDULE & CURVE FOR PIZZA Price (P) (Per pizza) $15 $12 $9 $6 $3 8 14 20 26 32 Demand (Q) (In millions per week)

Self-Practice Act 1: Draw and graph a demand schedule & curve for ice-cream Price of Ice-cream cone a $0.25 b $0.50 c $1.00 d $1.50 e $2.00 f $2.50 g $3.00 Quantity of cones demanded 12 10 8 6 4 2 1

ASSUMPTIONS AND LIMITATIONS OF THE LAW OF DEMAND INCOME CONSTANT. NO CHANGE IN TASTE, FASHION AND HABIT. NO FUTURE EXPECTATIONS. NO CHANGE IN WEATHER AND POPULATIONS. LIMITATIONS: VERY HIGH PRICED GOODS VERY LOW PRICED GOODS IGNORANCE OF THE CONSUMER NECESSITIES

DETERMINANTS OF DEMAND TASTES AND FASHIONS THE NUMBER AND PRICE OF RELATED GOODS INCOMES EXPECTATIONS OF FUTURE PRICE CHANGE POPULATIONS WEATHER

DISTINCTION BETWEEN CHANGES IN QUANTITY DEMANDED AND CHANGES AND DEMAND CHANGE IN QUANTITY DEMANDED OCCURS DUE TO CHANGE IN PRICE RESULTS IN MOVEMENT FROM ONE POINT TO ANOTHER ON A FIXED DEMAND CURVE ALSO CALLED EXTENSION AND CONTRACTION OF DEMAND CHANGE IN DEMAND OCCURS DUE TO CHANGE IN DETERMINANTS OTHER THAN PRICE RESULTS IN SHIFTING OF THE DEMAND CURVE EITHER TO THE RIGHT OR TO THE LEFT ALSO CALLED RISE AND FALL OF DEMAND

PRICE ELASTICITY OF DEMAND A MEASURE OF THE RELATIONSHIP BETWEEN CHANGES IN THE QUANTITY DEMANDED OF A PARTICULAR GOOD AND A CHANGE IN ITS PRICE. ELASTICITY MEASURES THE RELATIONSHIP BETWEEN A GOOD AND ITS PRICE BASED ON CONSUMER DEMAND, CONSUMER INCOME AND ITS AVAILABLE SUPPLY.

DETERMINANTS OF PRICE ELASTICITY OF DEMAND THE DEGREE OF NECESSITY OR WHETHER THE GOOD IS A LUXURY > NECESSITIES TEND TO HAVE AN INELASTIC DEMAND WHEREAS LUXURIES TEND TO HAVE A MORE ELASTIC DEMAND. THE PROPORTION OF A CONSUMER INCOME ALLOCATED TO SPENDING ON THE GOOD > PRODUCTS THAT TAKE UP A HIGH PERCENT OF INCOME WILL HAVE A MORE ELASTIC DEMAND.

Summary DEMAND $ Down $ Up SUPPLY $ Up $ Down

DEFINITION OF SUPPLY AND EXPLANATION OF SUPPLY CURVE WHAT IS SUPPLY? →ALL OTHER FACTORS BEING EQUAL, AS THE PRICE OF A GOOD OR SERVICE INCREASES, THE QUANTITY OF GOODS AND SERVICES THAT SUPPLIERS OFFER WILL INCREASE, AND VICE VERSA.

DEFINITION OF SUPPLY AND EXPLANATION OF SUPPLY CURVE →THE GRAPHICAL REPRESENTATION OF THE RELATION BETWEEN THE QUANTITIES SUPPLY OF A GOOD THAT PRODUCERS ARE WILLING AND ABLE TO SELL AND THE PRICE OF THE GOOD →GRAPH CURVE THAT NORMALLY SLOPES UPWARD TO THE RIGHT OF THE CHART, SHOWING THE QUANTITY OF THE PRODUCT SUPPLIED AT DIFFERENT PRICE LEVELS

EXAMPLE OF SUPPLY CURVE

DETERMINANT OF SUPPLY PRODUCTION COST TECHNOLOGY NUMBER OF SELLERS EXPECTATION

Guided Practice 2: let’s draw and graph a SUPPLY schedule & curve for soda Price (P) of soda e $2.50 d $2.00 c $1.50 b $1.00 a $0.50 Quantity (Q) of sodas supplied (millions per week) 35 25 15 10 5

DIFFERENCES BETWEEN CHANGES IN QUANTITY SUPPLIED AND CHANGES IN SUPPLY OCCURS DUE TO CHANGE IN THE MARKET PRICE IS REPRESENTED BY MOVEMENT FROM ONE POINT TO ANOTHER ON THE SAME SUPPLY CURVE ALSO CALLED EXTENSION AND CONTRACTION OF SUPPLY CHANGES IN SUPPLY OCCURS DUE TO CHANGE IN DETERMINANTS OF SUPPLY OTHER THAN PRICE IS REPRESENTED BY A SHIFT IN THE SUPPLY CURVE EITHER TO THE RIGHT OR TO THE LEFT ALSO CALLED RISE AND FALL IN SUPPLY

Self-Practice Act 2: Draw and graph a supply schedule & curve for tires Price (P) of tire a $500 b $300 c $250 d $200 e $150 d $100 f $50 Quantity (Q) of tires supplied (thousands per month) 100 80 60 50 40 20 5

PRICE ELASTICITY OF SUPPLY MEASURE THE RELATIONSHIP BETWEEN CHANGE IN THE QUANTITY SUPPLIED AND A CHANGE IN PRICE. MEASURE THE RATE OF RESPONSE OF QUALITY DEMAND DUE TO PRICE CHANGE

DETERMINANTS OF PRICE ELASTICITY OF SUPPLY THE PRICE ELASTICITY OF SUPPLY DESCRIBES THE MAGNITUDE OF THE CHANGE IN QUANTITY SUPPLIED TO A CHANGE IN PRICE MEASURE THE RESPONSIVENESS OF QUANTITY SUPPLIED TO A CHANGE IN THE PRODUCT PRICES

DETERMINANTS OF PRICE ELASTICITY OF SUPPLY THE MAIN FACTORS WHICH DETERMINE THE DEGREE OF PRICE ELASTICITY OF SUPPLY: →TIME PERIOD →ABILITY TO STORE OUTPUT →FACTOR MOBILITY

Conclusion DEMAND: $ Down $ Up SUPPLY: $ Up $ Down

DEMAND: as P+, Q- as P-, Q+ SUPPLY: as P-, Q- as P+, Q+ Conclusion D & S summary video

THE END THANK YOU ☺

Have a great day☺ Classwork 8 Business Organizations Read pgs. 206-211, Answer only 1-4 Read pgs. 213-217, Answer only 1-5 Read pgs. 219-225, Answer only 1-5 Have a great day☺

Explain the law of demand Explain the law of supply Pop Quiz Explain the law of demand Explain the law of supply Draw a curve for the following demand schedule *Draw your own graph and be sure to show P and Q