“Demand”

Demand The desire, ability, and willingness to buy a product.

Demand Schedule A listing that shows the quantity demanded at all prices.

Demand Curve Graphing the demand schedule. Downward slope moving from left to right.

Law of Demand When the price goes down, demand goes up.

Change in Quantity Demanded As the price changes, demand changes. On a graph, it is the movement ALONG the curve.

Change in Demand Demand changes for other reasons instead of a price change. When this happens, the ENTIRE demand curve shifts on a graph. A shift to the right is an increase. A shift to the left is a decrease. Ex: income changes, competition, consumer tastes change

Change in Demand Question: Is it increasing or decreasing? Answer: Increasing

SHIFTS in the Demand Curve $ D What factors would cause a SHIFT in the demand for coffee?

SHIFTS in the Demand Curve $ D Income What would happen if you receive an increase in income? More coffee is demanded at $1.25 D 2

SHIFTS in the Demand Curve $ D Income What would happen if your income were reduced? Less coffee is demanded at $1.25 D 2 10

SHIFTS in the Demand Curve $ D Change in Preferences What if you began to enjoy coffee more than before? More coffee is demanded at $1.25 D 2

SHIFTS in the Demand Curve $ D Change in Preferences What if you started to get sick of drinking coffee? Less coffee is demanded at $1.25 D 2 10

SHIFTS in the Demand Curve $ D Expectations What if you knew there was going to be a sale on coffee next week? Less coffee is demanded at $1.25 D 2 10

SHIFTS in the Demand Curve $ D Expectations What if you knew that a sale on coffee were ending tonight? More coffee is demanded at $1.25 D 2 LAST DAY

Substitutes One product is purchased instead of another because of price. Vs. KentwoodSam’s Choice

Substitutes Vs. Fruit Loops Fruit Islands

Substitutes Butter vs. Margarine

Complements Price of a related good changes, changing the demand for its partner – product. Camera and Film

Complements Hot Dog and Hot Dog Bun

SHIFTS in the Demand Curve $ D Price of Related Goods Less coffee is demanded at $1.25 D 2 10 SUBSTITUTES

SHIFTS in the Demand Curve $ D More coffee is demanded at $1.25 D 2 SUBSTITUTES Price of Related Goods

SHIFTS in the Demand Curve $ D More coffee is demanded at $1.25 D 2 COMPLEMENT S Price of Related Goods What if the price of donuts went down?

SHIFTS in the Demand Curve $ D Price of Related Goods Less coffee is demanded at $1.25 D 2 10 COMPLEMENT S What if the price of donuts went up?

Elastic Demand When a small change in price causes a huge change in demand. This computer system in 1981 cost $1700.

Elastic Demand This computer system in 2004 costs $700.

Inelastic Demand When a small change in price causes little or no effect in the demand of a product. Insulin shot for diabetics

Elasticity = Flexibility Demand  Elastic  Consumer can be flexible and delay the purchase or buy a substitute (example: T-bone steaks) Demand  Inelastic  Consumer cannot be flexible and must purchase the product no matter what (example: salt)

“Supply”

Many of the terms for supply are the same as demand, except, some are simply opposite. When looking at demand, you are looking from the buyer’s point of view. When looking at supply, you are looking from the seller’s point of view.

Supply Schedule On a supply schedule, for example, as the price goes down, the quantity supplied goes down. If the price lowers, the supplier will slow down production to make up for the loss in profits.

Supply Schedule

Graphing the Supply Schedule Upward sloping from left to right. Change in Quantity Supplied is movement along the curve. Supply Curve

Change in Supply is the same as Change in Demand. The curve shifts because of reasons other than price. And once again, a shift to the right is an increase and a shift to the left is a decrease.

Question: Is the supply curve increasing or decreasing? Answer: Decreasing

“Prices and Decision Making”

Equilibrium Price The point where the demand curve and the supply curve meet on the graph.

When the demand for a product goes down, the business has a surplus of products. Usually, they will slow production down. Surplus and Shortage When the demand for a product goes up, the business will have a shortage of a product until it increases the production to compensate.

Surplus vs. Shortage

Depreciation The gradual wear and tear on capital goods over time and through use. Therefore, the value has decreased.

Rationing A system under which a government agency decides everyone’s fair share. Examples: Great Depression WWII Gas shortage of late 1970’s