Warm-Up What is an example of something you bought over the last week. Identify the choice you made, the other options you could’ve chosen, and the opportunity cost. Consider this question: Why are NBA superstars like Lebron James paid so much more than the average professional player?

Supply & Demand In a market-based economy, the market is made up of producers and consumers. One group produces products (supply) and the other consumes them (demand) The supply and demand for a good determines its price This is laissez-faire economics – The belief that the market will give us the best price, because both producers and consumers will act in their self-interest.

Supply & Demand DEMAND: The desire, willingness AND ability to purchase a good. SUPPLY: Stock of a good or service that a producer offers PRICE: The dollar amount at which a good is sold

Adam Smith Father of market-based economic theory Introduced concept of “invisible hand” Producers and consumers can both act out of self- interest The market will eventually reach an equilibrium price where the supply of a product equals the demand

Law of Supply / Law of Demand Law of Supply: The supply of goods will always increase with an increase in price Producers would love to sell all their products at the highest possible price Law of Demand: The demand for goods will always increase with a decrease in price Consumers would love to buy all products at the lowest possible price

Market Demand / Supply Curves Price of Slice of Pizza Quantity demanded per day .50 300 1.00 250 1.50 200 2.00 150 2.50 100 3.00 50 Price of Slice of Pizza Quantity supplied per day .50 50 1.00 100 1.50 150 2.00 200 2.50 250 3.00 300

Shifts in Demand Curve Move up and down original demand curve as long as it’s based on price. At $2.00, consumers will demand 150 slices. At $1.50, they will demand 200. Demand curve shifts left or right based on all other variables: Consumer expectations – Products don’t match what consumer expects Tastes – Items become unpopular Income – More money empowers more demand Population – More people in an area will increase demand Availability of SUBSTITUTES and/or COMPLEMENTS

Shifts in Supply Curve When would the supply of a product shift (increase or decrease) at all prices? Future increase/decrease in prices Production costs (labor, resources) increasing / decreasing Government subsidies can move it to the right (increase supply), government regulations can move it to the left (decrease)