DEMAND AND SUPPLY Demand I am selling my iPod. Who would like to buy it? What will you pay for it? Demand the quantity of goods or service that consumers are willing and able to buy at a particular price.

DEMAND AND SUPPLY Demand↑ as Price↓ Law of Demand Usually consumers will increase the demand of a good or service as price decreases (which goods might this not apply to?) Demand↑ as Price↓

WHAT CREATES DEMAND? 1. Consumer is aware of or interested in the good or service (business do this by advertising) 2. Ample supply of the good/service 3. Price is reasonable and competitive 4. The good/service must be accessible.

WHAT AFFECTS DEMAND? Change in consumers’ income (increase in income usually means more goods/services are purchased, however it could mean less) Change in consumers’ tastes (why don’t people buy legwarmers or McHammer pants anymore?) Changes in what we expect in the future (e.g. if we think the price will decrease, we’ll wait to buy) Change in population (why was this school built? why are more retirement homes being built?)

DISCUSSION QUESTIONS Think of the things that you and your friends buy or would like to buy. What products are in high demand among your age group? Why are they in demand? Think of examples from the Fast food industry Entertainment industry Travel industry Automotive industry Recreation/sports industry that illustrate how a change in prices of related (complementary) goods affects demand?

SUPPLY Definition: the quantity of a good or service that businesses are willing and able to provide within a range of prices that people would be willing to pay Law of Supply: ↑S as ↑P Usually as prices increase, producers will increase the quantity of goods they provide Supply P R I C E Quantity Supplied

CONDITIONS THAT AFFECT SUPPLY A change in the number of producers (more producers increases the supply of goods and usually decreases the price); E.g. Toshiba sold the first for $500 – how much are they now? Price of related goods (if gas prices increase, people may buy more energy efficient cars) Change in technology (VCR sales vs. DVD sales, blu-ray versus regular dvds) Change in expectations Change in cost of production if you provide a lawn cutting service and the price of mowers increases – continue only if can charge more!

SUPPLY AND DEMAND CURVES

ELASTIC vs INELASTIC DEMAND The demand for a product is not affected by a change in price Products that people need to survive, such as food, are inelastic. ELASTIC DEMAND: The demand for a product is affected by a change in price Products that people can do without (iPod, Sports Car, etc.)