Important difference… unlimited desires or wishes that people have for goods and services. Wants: unlimited desires or wishes that people have for goods and services. willingnessability Demand: the willingness and ability to purchase a good or service. I.e. must be backed up by buying power.

Price usually most important factor. What is the relationship between the price and the quantity demanded of a good? Let’s do a quick example to work it out for ourselves… GRADE 9 AUCTION

The law of demand states that… higher price smaller quantity demanded lower price greater quantity demanded the higher the price of a good or service, the smaller the quantity demanded or the lower the price of a good or service the greater the quantity demanded. Only applies if all the other factors (income, preferences, weather etc.) remain unchanged (ceteris paribus). What does this relationship look like graphically?

Price (R) Quantity Demanded (000s) Demand R10 R There is an inverse relationship between price and quantity demanded.

1. The substitution effect When the price of a good rises, its price, relative to all other prices, rises. Consumers purchase its substitutes. 2. The income effect When a price increases, the same amount of money buys less. I.e. people become relatively poorer. Forced to reduce the quantities demanded.

Price (P) (Rand per bag) Quantity demanded (Q) (Bags per month) A B C D E Now plot these figures on a graph to show the relationship between price and quantity. Price on Y-axis, Quantity on X-axis

willingable Supply: the relationship between the price of a product and the quantity of that product that producers are willing and able to supply on the market.

VIDEO - How costs influence supply

cost of productiondecrease quantitysupplied Any factor that causes the cost of production to RISE will decrease the quantity supplied at any given price level. cost of productionFALL increase quantity supplied Any factor that causes the cost of production to FALL will increase the quantity supplied at any given price level.

The law of supply states that… lower price smaller quantity supplied higher price greater quantity supplied the lower the price of a good or service, the smaller the quantity supplied or the higher the price of a good or service the greater the quantity supplied. Only applies if all the other factors (costs, subsidies, weather etc.) remain unchanged (ceteris paribus). What does this relationship look like graphically?

Price R Quantity Bought and Sold (000s) Supply R3 200 R7 800 There is a positive relationship between quantity supplied and price. The Supply Curve

Now plot these figures on a graph to show the relationship between price and quantity. Price on Y-axis, Quantity on X-axis Price (P) (Rand per bag) Quantity supplied (Q) (Bags per month) A B C D E 10

So how do we determine the market price??? Price (Rand per bag) Quantity demanded (bags per month) Quantity supplied (bags per month) Excess demand/Excess supply Pressure on price? A Excess Supply- Decrease B Excess Supply- Decrease C Neutral D Excess demand- Increase E Excess demand- Increase

Equilibrium price and quantity is found where… SUPPLY DEMAND SUPPLY = DEMAND

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Questions relating to the graph If supply increased, the equilibrium price would increase/decrease. At a price above $5, there will be excess demand/excess supply? What is the equilibrium price? What is the equilibrium quantity? At a price below $5, there will be excess demand/excess supply? If demand increased, the equilibrium price would increase/decrease.

The price will remain at the equilibrium price until either demand or supply changes. PRICE ______

Explain the effects on supply, demand and the resulting market price of Brussel Sprouts based on the factors mentioned in the video. VIDEO: Brussels Sprouts Demand increases/decreases – WHY? Supply increases/decreases – WHY? This results in the price of Brussel Sprouts increasing/decreasing.