Unit 8.3 Demand and Supply Notes- Answers Complete the Structured Notes as you view the Power Point.

Standards: Essential Standards: CE.E1.2 Analyze a market in terms of economic characteristics, the roles they play in decision- making and the importance of each role CE.E1.3 Explain how supply and demand determine equilibrium price and quantity produced CE.E1.4 Analyze the ways in which incentives and profits influence what is produced and distributed in a market system CE.E1.5 Compare how various market structures affect decisions made in a market economy

Unit 8.3: Chapter 21 Demand and Supply Section 1 Demand

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1 Demand- desire for a certain item  Demand Schedule- Table showing the amount of a product a person is willing to buy at certain prices Demand Curve- graph showing the amount of a product a person is willing to buy at certain prices (moves down)

Demand Schedule Higher the PRICE the lower the DEMANDED

Demand Curve Higher the PRICE the lower the DEMANDED

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1 The downward direction of the demand curve shows that consumers are likely to buy more goods and services at lower prices and less at higher prices

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1 The curve is drawn with prices on the vertical axis and quantities on the horizontal axis  When demand goes down, the demand curve moves to the left When demand goes up, the demand curve moves to the right

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1 Law of Demand: Consumers will buy less at higher prices and more at lower prices

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1 Market Demand- all consumers’ desire for a certain item (supermarket- a lot of people; market- a lot of people) Market Demand Schedule- chart showing the amount of a product all consumers are willing to buy at certain prices Market Demand Curve- graph showing the amount of a product all consumers are willing to buy at certain prices

Poll What is the Law of Demand?

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 1 Before opening a business you must know the demand for the area to determine if you have a chance to make money *don’t open a southern fried chicken restaurant in the middle of a northern Italian neighborhood unless you know they will buy your chicken

Unit 8.3: Chapter 21 Demand and Supply Section 2 Factors Affecting Demand

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 What causes a change in demand? Changes in… Population Income Tastes Expectations Price Substitute Complements

Poll How can an increase in the price of a product influence a substitute product?

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 Demand Elasticity- Measure of how a change in price causes a change in the amount demanded (gas prices $.01 increase compared to $.10 increase) If the price goes up- people will not buy If the price goes down people will buy If there is a cheaper substitute for people to buy demand will be elastic Our purchases expand and contract based on the price

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 Inelastic Demand- Price does not influence whether people buy a product or not- medicine, you need it not matter what it cost   necessities are inelastic, luxuries are elastic

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 Substitutes- competing products consumers may use in place of the other (margarine for butter) A change in price for one causes the demand for the other to move in the same direction (price of butter goes up, demand for butter falls but the demand for its substitute, margarine, goes up)

Poll What are necessities? Elastic Inelastic

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 Complements- Products that are used together- ie a computer and a mouse, Printer and ink cartridge, DVD and DVD player, shoes and laces Utility- satisfaction from a product or service; varies between people- one may like it, another person may not like it (Dominos v. Papa John’s delivery; cars, TV, hairstylist, anything you buy or receive can vary from one person to the next)

Poll What are luxuries?

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 Diminishing Marginal Utility- principle that our satisfaction goes down the more we have of a product or service ex.- last piece of pizza never as good as the first Before you buy something you usually weigh your projected diminishing marginal utility in your head- if you feel it will decrease greatly (you will not be satisfied with it for a long time) then you will probably not buy it

Poll Give an example of products that are compliments of one another.

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 You might ask yourself……. Do I really need this pocketbook? Is it big enough? Will the leather wear out? Does it match my clothes? If those answers are no, you probably will not be satisfied with it for a long time and the “utility will diminish” Some people say “I don’t care. I want it now and that is all that matters to me right now.” Once they get it home their satisfaction may go down even though they wanted it very badly.

Poll Give an example of a product you bought that had Diminishing Marginal Utility.

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 2 When the Demand Curve slopes downward because it shows how people are willing to buy less of an item at a high price *the down slope represents less of a demand for high priced items

Unit 8.3: Chapter 21 Demand and Supply Section 3 Supply and the Supply Curve

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Supply- the various quantities of a good or service that producers are willing to sell at all possible market prices Like demand supply can be looked at as the output for a single business or producer the supply of all producers added together to get the supply for the entire market

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Supply is the opposite of demand Suppliers offer different quantities of a product depending on the price that buyers are willing to pay The quantity supplied varies according to price

Poll Why does supply depend on price?

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Law of Supply- suppliers will offer more for sale at higher prices and less at lower prices As the price rises for a good the quantity supplied rises- as the price falls the quantity supplied falls The incentive for producers to make more at higher prices is the hope of making a high profit

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Profit- the money a business receives for its products or services over and above the cost to produce it

Poll What is the Law of Supply?

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Supply Schedule- chart showing the amount of a product a business is willing to produce for sale at certain prices

Supply Schedule Higher the PRICE the higher the SUPPLY

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Supply Curve- graph showing the amount of a product a business is willing to supply for sale at certain prices (moves up) The supply curve graph is drawn with prices on the vertical axis and quantities on the horizontal axis   The upward direction of the supply curve shows that suppliers are likely to offer more goods and services at higher prices and fewer at lower prices When the supply goes down, the supply curve moves to the left When the supply goes up, the supply curve moves to the right

Supply Curve Higher the PRICE the higher the SUPPLY

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Factors that can affect supply: The cost of resources Productivity Technology Government Policies Taxes Subsidies Expectations Number of Suppliers

Poll How can productivity affect supply?

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Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Supply Elasticity- Measure of how supply changes in response to a change in price Depends on how quickly a company can change the amount of a product it makes when the price changes- holiday candy Inelastic Supply- When a company can’t produce more of a product quickly and easily when prices go up- oil

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 3 Market Supply- the total of all supply schedules of all the businesses that supply the same good or service Market Supply Curve- graph showing the amount supplied at various prices by all businesses in a certain market Market Supply Schedule- chart showing the amount supplied at various prices by all businesses in a certain market

Unit 8.3: Chapter 21 Demand and Supply Section 4 Demand and Supply at Work

Chapter 21: Demand and Supply Standards: 1.2,1.3, 1.4, 1.5: Section 4 Surplus- amount that the quantity supplied is higher than the quantity demanded (above equilibrium price) Shortage- amount by which the quantity demanded is higher than the quantity supplied (below equilibrium price) Equilibrium Price- the point where supply and demand are balanced

Equilibrium Price:

Poll What is the equilibrium price of a good or service?

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Poll What is the name of the space above the equilibrium price on a curve (graph)?

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Poll What is the name of the space below the equilibrium price on a curve (graph)?

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