How does supply and demand impact you personally? Warm Up # 4` How does supply and demand impact you personally? What are the FOUR factors of production?

Supply & Demand: The Dance Chapter 21

Market Anytime buyers and sellers come together, a market is created. Buyers are careful about how much they are willing to pay for a product, often shopping around for the best price. Suppliers respond in the same way by moving to a price where there are no leftovers or shortages.

Demand Demand is the desire, willingness & ability to buy goods & services. Demand only exists if people want the product & are willing to pay the price for it.

Quantity Demanded Falls As price falls, Quantity Demanded rises Law of Demand As Price rises, Quantity Demanded Falls As price falls, Quantity Demanded rises

Demand Schedule Demand schedule is a table of the quantity demanded of a good at different price levels Given the price level, it is easy to determine the expected quantity demanded. Helps sellers to determine the price Can be done as an individual demand schedule, based on one person market demand, the demand for all of the consumers for that good/service.

Demand Curve A demand curve is a graph that shows the demand schedule.

Supply Supply- the various quantities of a good or services that producers are willing to sell at all possible market prices. Can refer to a single producer or all of the producers to get the supply for the entire market. Suppliers offer different quantities of a good depending on the price buyers are willing to pay, while buyers demand different quantities of a good depending on the price the seller ask.

The Law of Supply As the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa. Consumers want to pay as little as they can. They will buy more as the price drops. Sellers, on the other hand, want to be able to charge as much as they can. They will be willing to make more and sell more as the price goes up. This way they can maximize profits.

Supply Schedule After determining the demand for cookies, the supply schedule is needed before the market price can be found. Supply Schedule- is a table that shows the quantities of a good (or service) that potential sellers would offer to sell at varying prices shows how the law of demand and law of supply works

Supply Cont.

Demand Schedule + Supply Schedule = Market Price In order to find the market price or equilibrium price for a product you can use a demand & supply graph. Where the two lines intersect is the market price/ equilibrium price can be found.

Changes in Demand Market demand for goods can increase or decrease. Sometimes people are more willing to pay more for a particular product or good. Then another curve could be graphed and another intersect for supply and demand would occur finding the new equilibrium price

How the graph shifts according to a change in quantity demanded.

Reasons for a Change/ Shift in Demand Changes in population Changes in income Changes in taste/ popularity Changes in expectations When people are preparing for the future whether it is a new product that replaces an old one, or preparing for a hurricane and stocking up on supplies Change in price or quality of related products

Reasons for a Change/ Shift in Demand Change in price or quality of related products Two types of related products Substitutes- consumers can use one instead of the other An increase in the price of a substitute product will increase the quantity demanded of the good Ex) If you are the producer of Keebler Chocolate-Chip Cookies and Pepperidge Farm Chocolate-Chip Cookies raises their prices, there is an increase in the quantity demanded of Keebler’s Chocolate-Chip Cookies. Complements- a product that is used in conjunction or together with another product. The quantity demanded of one will affect the other A DVD player is a complement of a DVD. If DVD players prices fall then the quantity demanded for DVD player will rise, just as the quantity demanded for DVD’s will rise

Example of substitute product shifting demand Rise in price of Coca-Cola, decreases the quantity demanded. Because Pepsi is a substitute product the quantity demanded for Pepsi rises

Warm Up #5 Explain separation of powers and the function of each part it has in both the Federal government and State/Local government. What is the purpose of the separation of powers? You have a quiz (mostly multiple choice) today on everything we have covered in Econ leading up to Supply and Demand. Due Today: The LORAX questions. Have them out on your desk so I can check them while you are completing your warm up.

Demand Elasticity Demand Elasticity a measure of the responsiveness of quantity demanded to a price change, may cause a change in price to have a small or large impact on quantity demanded. Inelastic goods such as gasoline are still purchased in approximately the same quantity even when prices rise. Elastic goods usually follow the law of demand and will see a drop in quantity demanded when prices rise. restaurant meals, movie tickets, and luxury items

Demand Elasticity Cont. FYI If a good has a large number of substitutes, the more elastic it is. The fewer the substitutes, the greater the inelasticity. If the good is highly desired with few substitutes it may be more inelastic. If the good represents a small proportion of a person's budget, price changes do not greatly affect the amount purchased.

Inelastic v. Elastic

Elastic or Inelastic? Salt Inelastic, Salt is inelastic because there are no good substitutes, it is a necessity to most people, and it represents a small proportion of most people's budget.]

Elastic or Inelastic? Toothpicks Inelastic because they cost very little and represent a small percentage of a typical grocery budget and have few substitutes

Elastic or Inelastic? Chevrolet cars/ trucks Elastic because we don't have to buy that brand of car - we have lots of substitutes

Elastic or Inelastic? Physician Services/ Doctors Visits Inelastic, because this is a necessity

Why does supply change? Profit is the biggest incentive, which motivates everything else

Why does supply change? Cost of Resources/ Availability of Resource Productivity Technology Government Policies- can limit the amount of a good produced. A rise in minimum wage could reduce the supply b/c production cost would go up Taxes Subsidies- gov. payment to an individual, business, or other group for certain actions. Ex) tobacco farmers paid not to grow tobacco Expectations- if businesses don’t think there is a high demand for their product, then they will produce less Number of Suppliers- the more suppliers, the more products

Supply Elasticity Supply elasticity is a measure of how the quantity of a good changes in relation to a change in price. ELASTIC Supply - If the price of a good goes up and the supplier is able to dramatically increase output/ supply of that good. Or decrease if the price goes way down. Good typically fairly easy to produce, candy around holidays INELASTIC - very difficult for a producer to change the amount of a supply based on the price level. Ex) drilling for oil

What Determines the Elasticity of Supply? Availability of raw materials Length and complexity of production Time to respond Inventories Capacity to expand production

Back to setting the price What happens if the price is too high or too low for a good/ service? Surplus- if the price is too high and then there is more quantity supplied than quantity demanded & there are overages. Shortage- if the price is too low than there is less quantity supplied than quantity demanded.

Example… in bucket prices Why is the price different? What are they trying to avoid?

Price Controls- Gov. regulation of prices Price Ceiling – gov. sets maximum price that a good can be sold for. Usually for essential expenses such as rent Designed to protect consumers from rapid price increases and help the poor Can cause shortages of goods

Gov. Price Controls Price Floors- sets a minimum price for a good. Keeps prices from getting too low Minimum wage is an example of a price floor in order for it to be effective it must be set above the equilibrium price. Can cause a surplus of goods/ services