Supply and Demand AP Economics

Law of Demand (consumers) As prices increase, the quantity demanded of a good or service will decrease and vice versa Demand vs. Quantity demand How much of the good or service do you want? Do you want the good or service?

Demand A consumers willingness and ability to purchase a good or service Consumers are sensitive to prices and their income Ex. Ms. Yeomans likes Starbucks lattes

Quantity Demand The AMOUNT a consumer is willing and able to purchase at a particular price Ex. Ms. Yeomans will purchase 1 latte @ $4.75 each. If the price falls to $3.50 she might purchase 2 lattes.

Law of Supply (producers) As prices rise, the quantity supplied will increase and vice versa Producers are sensitive to prices and costs of production

Supply A producers willingness and ability to supply a good or service Ex. Jacob is willing to work (supply his labor) for Farmer Smith collecting peaches

Quantity Supplied The AMOUNT a producer is willing and able to supply at a particular price Ex. At minimum wage, Jacob is willing to supply his labor for 20 hours per week. If Farmer Smith offers Jacob $9 per hour, he will supply his labor for 30 hours per week.

Equilibrium The price and quantity that are determined by the intersection of supply and demand. This is the price goods and services will be sold at and the quantity that will be sold.

P S Ep Equilibrium (market clearing) D Eq Q

Determinants of Demand Changes will cause the demand curve to shift to the left (decrease) and to the right (increase) I - income N – number of consumers S – substitute good prices E – expectations of future prices C – complementary good prices T – Taste and preferences

Price of the good itself will not change total demand (will not shift the curve) It will only cause a change in quantity demand (move along the points on a curve)

P S Increases in Demand Ep2 Ep D2 D P Eq2 Eq

P S Decreases in Demand Ep D2 D Eq P

Determinants of Supply Changes will cause the supply curve to shift to the left (decrease) and to the right (increase) R – resource costs O – opportunities for other profits T - technology T – taxes and subsidies E – expectation of future prices N – number of sellers

P Increases in Supply S S2 Ep Ep2 D P Eq Eq2

S2 P Decreases in Supply S Ep2 Ep D P Eq2 Eq