Lesson 14: Supply and Demand

Objectives Give real-world examples of product surplus, shortage, equilibrium, and diminishing marginal utility Give real-world examples of product surplus, shortage, equilibrium, and diminishing marginal utility Describe the characteristics of a free enterprise economy Describe the characteristics of a free enterprise economy Explain the role of the consumer in the supply and demand cycle Explain the role of the consumer in the supply and demand cycle Describe what happens when supply exceeds demand Describe what happens when supply exceeds demand Create a chart illustrating the supply curve, demand curve, and point of equilibrium Create a chart illustrating the supply curve, demand curve, and point of equilibrium Forecast future sales based on demand and past sales Forecast future sales based on demand and past sales Calculate how many stores an economy can support Calculate how many stores an economy can support

1.Supply and Demand Economic principle that explains the correlation between the amount of product available to sell and the willingness of customers to buy that product Economic principle that explains the correlation between the amount of product available to sell and the willingness of customers to buy that product Free enterprise economy – people are able to own and operate businesses in a competitive environment with little or no government involvement Free enterprise economy – people are able to own and operate businesses in a competitive environment with little or no government involvement –The market determines prices supply and demand

2.What is Supply? The amount of goods produced by manufacturers and offered for sale in a marketplace The amount of goods produced by manufacturers and offered for sale in a marketplace IE: you expect when you walk into a store that it will have the items you are looking for IE: you expect when you walk into a store that it will have the items you are looking for

3.What is Demand? The amount of goods customers want and are willing to buy The amount of goods customers want and are willing to buy –Works in conjunction with supply When supply is limited and customer demand is high, prices are high (ie: Kinect) When supply is limited and customer demand is high, prices are high (ie: Kinect) When customer demand is limited and supply is high, prices are low (ie: cookies) When customer demand is limited and supply is high, prices are low (ie: cookies) When supply and customer demand are at the same level, prices remain constant (ie: toilet paper and other necessities) When supply and customer demand are at the same level, prices remain constant (ie: toilet paper and other necessities)

4.Supply and Demand for Goods 1. Surplus - There are more goods for sale than customers demand or able to buy Can happen when prices are too high – often given a markdownCan happen when prices are too high – often given a markdown 2. Shortage – There are not enough goods for sale to meet customer demand Can happen when prices are too low – often given a markupCan happen when prices are too low – often given a markup 3. Equilibrium – supply and demand for an item are at the same level Prices remain stable, both customers and owners are happyPrices remain stable, both customers and owners are happy

5.Law of Diminishing Marginal Utility Economic principle similar to supply and demand Economic principle similar to supply and demand States: Consumers will only buy a certain amount of a specific product regardless of its low price States: Consumers will only buy a certain amount of a specific product regardless of its low price Utility – satisfaction experienced by a customer through the use or consumption of a product or service Utility – satisfaction experienced by a customer through the use or consumption of a product or service Marginal – additional, extra Marginal – additional, extra Product with diminishing marginal utility has decreasing value Product with diminishing marginal utility has decreasing value –Buying a movie on ‘Video On Demand’ – the first time you watch the movie it will bring you a lot of enjoyment; with each additional viewing your enjoyment decreases since you already know the story

6.Voting for Products with Your Money Some products are promoted as the ‘latest’ and the ‘best’ but do not sell because customers did not want, need, or like them – no matter the price Some products are promoted as the ‘latest’ and the ‘best’ but do not sell because customers did not want, need, or like them – no matter the price These products are withdrawn from the market These products are withdrawn from the market YOUR money determines whether a product stays or leaves the market (in MOST cases) YOUR money determines whether a product stays or leaves the market (in MOST cases)

7.Key Math Concepts Demand = Past Sales Number – (% X Past Sales Number) If demand for granola bars is down 10% from last month and 50 units were sold last month, the demand for granola bars is:

Demand = 50 – (.10 X 50) 45

Point of Equilibrium Supply Curve – quantity of a product that is for sale at different prices Supply Curve – quantity of a product that is for sale at different prices –Generally rises from left to right –The higher the price, the higher amount available for sale Demand Curve – amount of a product that people are willing to buy at different prices Demand Curve – amount of a product that people are willing to buy at different prices –Generally falls from left to right –The higher the price, the less the demand for the product Equilibrium Point – point at which supply and demand meet Equilibrium Point – point at which supply and demand meet

Do a Google Search for: graph of supply and demand curve with equilibrium