1. Supply and Demand

2. Supply and demand impact everything and anything concerning money, wealth, possessions and trade.
If you can understand supply and demand, you can understand how anything financial works

3. Demand
Demand is the amount people are willing and able to buy at different prices
Ex: I’ll buy 4 rubber chickens at $0.25/chicken
I’ll only buy 2 rubber chickens at $1.00/chicken
This class will order 10 pizzas if the pizzas are $4.00/pizza
If you open a small business, it is vitally necessary to know the demand for your product or service in that area

4. General rule about demand
Generally the more something costs the less people will buy it
Likewise, the cheaper something is, the more they will be willing to purchase
Ex: I can order Chinese and go out maybe once every two weeks OR
Buy 100 bags of Raman noodles
Generally the richer you are the less you care about this.
Also the more something is a necessity the less you will care about price

5. A demand curve Is a way to graph the demand for a product or service
Always slopes downward
DEMAND = DOWN
Generally used by people in business
Read it the same way you would read any graph

6. Charting a demand curve
Price
Quantity $5 $4 $3 $2 $1 1 3 4 2 5 6

7. Price
Quantity
$2 --
$4 --
$6 --
$8 --
$10 -- 5 10 15 20 25 30 35 40

8. Can also use this to find maximum sales
Price
Quantity
At this price people want to buy 5, priced at $10/piece = potential revenue $50
$2 --
$4 --
$6 --
$8 --
$10 -- 5 10 15 20 25 30 35 40

9. Would do the same thing if given the data
PRICE
QUANTITY
$10 3 $7 5 $4 10 $1 20
Price
Quantity

10. Supply is exact opposite of Demand
Supply is the amount people are willing and able to sell at different prices
I’m willing to sell my 1 pack of Gulf War trading cards for $10,000
Generally the more money you can get for selling something, the more of them you will try to sell
If I find I can sell my Gulf War trading cards for $10,000, you can be sure I will attempt to find more to sell

11. Supply Curve Supply Curves always SOAR UP!
Represents that at higher prices, people try to sell more = make more money.
Price
Quantity

12. Price
Quantity
$2 --
$4 --
$6 --
$8 --
$10 -- 5 10 15 20 25 30 35 40

13. Put the two together Price
Place where they intersect is the ideal price. No waste or shortage.
Price
Quantity
$2 --
$4 --
$6 --
$8 --
$10 -- 5 10 15 20 25 30 35 40

14. Equilibrium Price
Generally around what you end up paying for things or selling them for.
Is representative of that product or service’s value
Can change
As seller, if you do not operate near the equilibrium price you will most likely lose money

15. Change in demand Q P D1 S 2 1 3 4 D2
END
New intersection = New price

16. Change in Supply S2 Q P D S1 2 1 3 4
END
New intersection = New price

17. example If supply of gasoline shrinks Demand stays the same
Our price goes up Q P D S1 2 1 3 4
Price of Gasoline S2
END
This is what happened after Hurricane Katrina!

18. What factors change demand?
Change in income
Price or availability of substitutes
Price or availability of compliments
Change in weather or season
Change in # of buyers
Change in styles, tastes or habits
Change in expectations
END

19. Change in Income The more money you have:
The greater quantity you will buy
The higher prices you will pay
If you lose your job, demand for vacation will… D1 Q P
Vacation
decrease D2
END

20. Price & availability of substitutes
People buy what is easiest and cheapest to get
If price of Pepsi goes way up:
Demand for Coke goes up
It raises the price of Coke D2 D1 Q P
END
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21. Price & availability of compliments
When items are linked, one always impacts the other
If there’s a shortage of peanut butter:
Demand for jelly would go down
Price of jelly would decrease D1 Q P
Jelly
END
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22. Change in weather or season
Do roses cost more in February?
Do more people use sunscreen in summer?
Drink hot chocolate in summer?
Speedos popular in winter?
END
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23. Change in # of buyers More people understand computers
More people there are to buy something, greater the demand
More people understand computers
So demand for computers increases
Causes price to increase
Over time though, what
will happen to supply? D1 Q P
Computers
END
Pittsburgh population decline

24. Change in styles, tastes and habits
Peoples’ preferences change over time
END
If something is popular, its demand is generally high.
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Vanilla ice from

25. Change in expectations
Expectations for the future influence how you spend now.
People expected Y2K in 2000 so:
They stocked up on bottled water
Demand for bottled water increases
Price of bottled water increases D1 Q P
Bottled water D2
END
This is how the stock market works!

26. What factors change supply?
Changes in cost of production
Changes in the # of sellers or producers
Change in expectations
END

27. Changes in cost of production
Costs of production
Are what you need to make goods
Determine how much you can make Q P
Plastic
END
What will an increase in the cost of oil do to the supply of plastic?

28. Change in # of suppliers
When companies go out of business, temporarily there is a decrease in supply
END
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29. Change in expectations
Stock brokers will try to sell more of a stock if they think that company will do badly in the future.
What will this do to the stock’s price? S1 Q P S2
END