Demand & Supply

The Basics IV. Demand A. Law of Demand B. Demand Curve C. Determinants of Demand D. Change in Demand E. Change in Quantity Demanded

Law of Demand What happens: – If the price of a good goes up, the quantity demanded goes down. – If the price of a good goes down, the quantity demanded goes up. – This is an inverse relationship What causes it to happen: – Income effect: lower the price, more ppl can afford it (you’ve just increased quantity demanded) – Substitution effect: Lower chicken prices relative to pork, beef, lamb, fish, etc. means that ppl will substitute chicken for other meats. (increased quantity demanded)

Demand Curve Price per BushelQuantity demanded per week $510 $420 $335 $255 $180 Plot this and you get a demand curve…

Change in Demand (∆D) These are what cause a demand curve to shift right or left Determinants of Demand (TIMER): – Consumers’ tastes (preferences) (T) – Consumers’ incomes (I) Normal goods (aka superior goods) Inferior goods – Number of consumers in a market (M) – Consumer expectations about future prices & incomes (E) – Price of related goods (R) Substitute goods Complementary goods Unrelated goods

Changes in Quantity Demanded (∆QD) Don’t confuse w/ a Change in Demand – Changes in demand shift the demand curve left or right. Changes in Quantity Demanded just means going up or down the demand curve – A movement from one point to another point on a fixed demand curve

∆D ∆QD Quantity Demanded PricePrice PricePrice A B

Draw the following ∆D or ∆QD : Price of gas rises from $3.50 a gallon to $5.50. Price of steak becomes cheaper. Price of hamburgers at McDonald’s goes up. Price of hamburgers at McDonald’s goes up. Draw how this will impact Whataburger. Price of a movie ticket goes up to $16. Draw how this will effect the sale of popcorn in theaters.

Elastic vs. Inelastic Demand ElasticInelastic Quantity Demanded PricePrice PricePrice Describes how much quantity demanded will change when price changes if it changes a lot, then the demand is considered elastic if it doesn’t change much, then the demand is inelastic

Ch 5 Supply

The Basics V. Supply A. Law of Supply B. Supply Curve C. Determinants of Supply D. Change in Quantity Supplied E. Change in Supply

Law of Supply Simple: – If the price rises, suppliers will want to sell more. (increase the quantity supplied) – If the price falls, suppliers will want to sell less. (decrease the quantity supplied)

Supply Curve Price per BushelQuantity supplied per week $580 $470 $355 $230 $120 Plot this and you get a supply curve…

Changes in Quantity Supplied (∆QS) Similar to Change in Quantity Demanded (∆QD)

So what might cause a change in supply (∆S)? Imagine you and your group members are partners in a business. Quickly decide what you are selling & a name for your business. List at least five things you will need to produce your good/service. – Such as the type of materials, equipment, labor, etc. do you need. Who are your direct competitors?

Changes in Supply Determinants of Supply – Besides the price of a good, there are other factors that influence the quantity supplied Resource prices Technology Taxes and subsidies Prices of other goods – Substitution of production Price expectation Number of sellers in the market These cause the whole line to shift left or right

A Change in SupplyA Change in the Quantity Supplied priceprice Quantity supplied priceprice A B