Supply and Demand Economics Pt. 2, Lesson 1

What is Supply? Supply: the various quantities of a good or service that producers are willing to sell at a price Law of supply: suppliers will normally offer more for sale at higher prices and less at lower prices The higher the price of a good the greater the incentive to produce it; profit Profit: the money a business receives for its products or services over and above its costs Profits can be used to increase wages, improve the company, or to keep for personal use

Factors Affecting Supply Price is the most significant influence on the quantity supplied of a product Changes in the cost of resources: when the price of one of the factors of production changes this affects supply; changes the price of production Productivity: improved productivity allows workers to produce more in the same amount of time thus increasing the supply Technology: can help stores keep track of inventory and reduce costs Changes in the cost of cheese can cause the price of a pizza to increase

Government and Expectations Changes in government policy: government regulations create new costs for businesses which affects the supply; car standards Changes in Taxes: Businesses are able to produce more and sell it for less when taxes are low; tax is an additional cost Changes in subsidies: government can pay producers to make certain products which increases supply Expectations: businesses will produce more of the goods and services that they expect consumers will want

Challenges for Supply Change in the number of producers: the larger the number of suppliers, the greater the supply; opposite is also true; flu shots Price controls; advantages vs. disadvantages Inelastic supply: goods that are hard to get more or less of based on price; oil, crops for the year Elastic supply: goods that are easy to produce more or less of depending on price: toys, candy, books

What Is Demand? Demand: desire, willingness, and ability to buy a good or service For demand to exist: 1- a consumer must want the good or service 2- a consumer must be willing to buy that good or service 3- a consumer must have the resources available to buy it Law of demand: quantity demanded and price move in opposite directions; as price goes up, demand goes down; as price goes down, demand grows up

Factors Affecting Demand There is individual demand and market demand in our economy; which are business more concerned with Changes in the number of consumers: the more consumers, the higher the demand; what can cause this? Changes in consumers’ income: the more money people have the more they can purchase so demand goes up; opposite can also occur Changes in consumers’ taste: if a good becomes popular the demand and the price increase; examples?

Factors Affecting Demand Changes in consumers’ expectations: if people expect financial trouble or gain they can adjust their demand for goods; expectations about goods can also effect demand Changes in Substitutes: Demand for a product can be affected by similar products that may be better or cheaper Changes in Complements: if the price of a complimentary good goes up or down it affects the price of those goods: DVD and DVD players Elasticity of demand: extend to which a change in price causes a change in quantity demanded: elastic vs. inelastic