 Quantities of a particular good or service that people are willing and able to buy at different possible prices.

 Consumers buy more of a good when its price decreases and less of a good when its price increases.

1. Changes in Income (the income effect) 1. Examples?

2. Prices or availability of substitutes (The substitution effect)  A substitute is a good/service that can be used in place of another.

 Prices or availability of complementary goods.  Complimentary goods are things that are often sold or used together.

 Changes in the number of buyers.

 Changes in preference, tastes, and technology.

 Intro Question –  Create a demand schedule for candy in this class. CostQuantity Demand FreeInfinite (or until bloated) 5 Jumping Jacks 10 Jumping Jacks 10 Pushups 20 Pushups 25 Second Dance Routine

Sale PriceQuantity Supplied FreeLimited by Availability $ $ $ $ $  Now, let’s assume Mr. Norton’s starts a candy sales business and business is booming: -What trends do you see above?

 Supply: The amount of a product that is offered for sale at all possible prices in a market.

 The Tendency of suppliers to offer more of a good/service at a higher price and less of that good/service at lower prices.

 Costs of inputs (factors of production)

 Changes in productivity.

 Change of the number of sellers in a market.  More sellers in a market = increased supply  Less sellers in a market = decreased supply

 The equilibrium price is the best price where supply and demand intersect.  This is the point where suppliers and consumers are in perfect harmony.

 Will having candy significantly improve your day? Why/why not?

u In an unregulated market system with open entry and exit, market forces establish equilibrium prices and quantities. u While equilibrium conditions may be efficient, not everyone will be satisfied with the outcomes.  Consumers  Producers  3 Economic Questions – Can’t please everyone

u Are usually enacted when policymakers believe the market price is unfair to buyers or sellers. u Result in government-created price ceilings or price floors.

Price Ceiling u A legally established maximum price at which a good can be sold. Price Floor u A legally established minimum price at which a good can be sold.

 There are 2 possible outcomes when dealing with price ceilings.  The price ceiling is not binding if set above the equilibrium price.  The price ceiling is binding if set below the equilibrium price, leading to a shortage.

 Scarcity leads to consumers bidding up the price until the demand and supply reach an equilibrium.

 What are price ceilings?  What if there are price ceilings on a product? (perhaps gas?)  What can that company do to fight the shortage, without raising prices, so they aren’t faced with losses?

 Price ceiling can cause a shortage in supply. A ceiling forces a company to produce less of a certain product, thus causing a shortage. With a low supply, but an extremely high demand, the company must make tough decisions about distribution.

 Limit the hours of when gas will be sold, cut costs on employees and storefront.  Sell the good in a shorter period of time.  Black Market!  Sell gas at a higher price to those who are willing to pay for it. (let the equilibrium set the price)  No gov’t regulation in an illegal market.  In a shortage situation, some people will be left without gas and others will have a surplus.

 If some people have access to the gas, they will buy as much as they can and then sell at a higher price in the black market.  In the black market, there is no gov’t regulation; thus, the price bidding returns, reestablishing an equilibrium in price, supply, and demand.  This will alleviate the shortage.  What are the opportunity costs of operating in a black market?