1. Objective: Identify how supply and demand impact price

2. II. Supply and Demand
Demand -desire to own something and the ability to pay for it
Law of demand- When a good’s price is lower, consumers will buy more of it.
When the price is higher, consumers will buy less of it.

3. Draw a Demand Curve

4. Price Profits Price Profits Supply -the amount of goods available
Law of supply- (Think like a producer) The higher the price, the larger the quantity produced.
As price falls, quantity of supply falls.
Price
Profits
Price
Profits

5. Draw a Supply Curve

6. Equilibrium Price -When quantity demand and quantity supplied are at the same price
Equilibrium is ideal for producers because more of their product gets sold
Equilibrium is ideal for consumers because the right amount of product is available for the people who want it

7. Identify Equilibrium Price

8. Equilibrium Graph Practice
Graph the following Supply and Demand Schedules
Identify the equilibrium price

9. Surplus -If supply exceeds demand
When price is too high, goods and services are limited by demand

10. Shortage – if demand exceeds supply, there will be a shortage
Price is too low so goods and services exchanged are limited by supply

11. Identify Shortage & Surplus

12. III. Changes in Demand
A. Change in the quantity demanded due to a price change occurs ALONG the demand curve
An increase in the Price of Cupcakes from $3 to $4 will lead to a decrease in the Quantity Demanded of Widgets from 6 to 4.

13. B. Demand Curves can also shift in response to the following factors:
(BITER: factors that shift the demand curve)
1. Buyers (# of): changes in the number of consumers
2. Income: changes in consumers’ income
3. Tastes: changes in preference or popularity of product/ service
4. Expectations: changes in what consumers expect to happen in the future
5. Related goods: compliments and substitutes

14. Prices of related goods affect on demand
a. Substitute goods a substitute is a product that can be used in the place of another.
-The price of the substitute good and demand for the other good are directly related
-For example, Coke Price Pepsi Demand
b. Complementary goods a compliment is a good that goes well with another good.
-When goods are complements, there is an inverse relationship between the price of one and the demand for the other
-For example, Peanut Butter Price Jam Demand

15. Changes in Demand
Several factors will change the demand for the good (shift the entire demand curve)
As an example, suppose consumer income increases. The demand for Widgets at all prices will increase.

16. Changes in Demand
Demand will also decrease due to changes in factors other than price.
As an example, suppose Widgets become less popular to own.

17. IV. Changes in Supply
A. Change in the quantity supplied due to a price change occurs ALONG the supply curve
If the price of Cupcakes fell to $2, then the Quantity Supplied would fall to 4 Cupcakes.

18. Changes in Supply
B. Supply Curves can also shift in response to the following factors:
(STONER: factors that shift the supply curve)
1. Subsidies and taxes: government subsides encourage production, while taxes discourage production
2. Technology: improvements in production increase ability of firms to supply
3. Other goods: businesses consider the price of goods they could be producing
4. Number of sellers: how many firms are in the market
5. Expectations: businesses consider future prices and economic conditions
6. Resource costs: cost to purchase factors of production will influence business decisions

19. Changes in Supply
Supply can also decrease due to factors other than a change in price.
As an example, suppose that a large number of Widget producers go out of business, decreasing the number of suppliers.

20. Changes in Supply
C. Changes in any of the factors other than price causes the supply curve to shift either:
1. Decrease in Supply shifts to the Left (Less supplied at each price) OR
2. Increase in Supply shifts to the Right (More supplied at each price)

21. Shifts in Supply & Demand

22. BITER – Demand Shifters
Buyers (number of) Income changing Tastes changing Expectations of the consumer Related goods (Compliments and Substitutes)

23. Compliments & Substitutes
Substitute – Lays Chips or Ruffles? Coke or Pepsi? Starbucks or Caribou Coffee?
Compliments – Peanut Butter & Jelly. Hotdogs & Hotdog Buns. Ketchup and Fires.

24. STONER – Supply Shifters
Subsidies and Taxes
Technology
Other goods
Number of sellers
Expectations of the business
Resource Costs

25. Demand Shift Practice
The Patriots win the 2015 Super Bowl. What will this do to the demand of Patriots memorabilia?

26. Demand Shift Practice
The price of toothpaste skyrockets. What will this do to the demand of toothbrushes?

27. Supply Shift Practice
The US Gov’t approves a subsidy to aid Cotton farmers. What will this do to the supply of Haines cotton t-shirts?

28. Supply Shift Practice
Summer is rapidly approaching. How will the CEO of Coppertone respond regarding the supply of sunscreen?

29. Shifts in S&D of Jelly Beans
Use your STONER & BITER acronyms to determine whether the scenario would cause a shift in the demand or supply curve
Is it an increase or a decrease?

30. Question
What exchange occurs in the Factor Market?

31. Answer
Businesses buy factors of production from households in exchange for income

32. Question
What exchange occurs in the Product Market?

33. Answer
Households use their earned income to buy finished goods and services from businesses

34. Question
What type of economy does the US have? Why do we consider it this?

35. Answer
Mixed – individuals, business and government determine what gets produced

36. Question
What is the law of demand?

37. Answer
The cheaper the item the more consumers will buy of it

38. Question
What does it mean when we achieve equilibrium?

39. Answer
Supply and demand meet each other at the same price

40. Question
What is the law of supply

41. Answer
When a good can be sold at a higher price producers will supply more of it

42. Question
What does the S and T stand for in STONER?

43. Answer
Subsidies/taxes
Technology

44. Question
What does the E and R stand for in BITER?

45. Answer
Expectations of the consumer
Related goods

46. Question
What is an example of substitute goods?

47. Answer
Ask Mrs. Patterson

48. Question
What is an example of complimentary goods?

49. Question
What does the O and N stand for in STONER?

50. Question
What does the B and I stand for in BITER?

51. Answer
Buyers (number of)
Income changes

52. Question
A change in price causes a shift of the supply or demand curve?

53. Answer
Neither. A change in price only causes movement along the curve

54. Question
Where do we locate a shortage and surplus on a S&D graph?

55. Question Shift in supply or demand?
A freeze in Brazil kills a large part of the world’s coffee crop

56. Answer
Supply – Resource Costs

57. Question
The price of tea, substitute for coffee, decreases

58. Answer
Demand – Related Goods

59. Question
Doctors say that coffee may help cure migraine headaches

60. Answer
Demand – Expectations of the Consumer

61. Question
The economy takes a dive and incomes drop to record laws.

62. Answer
Demand – change in income

63. Question
Dunn Brothers opens 50 additional stores nationwide

64. Answer
Supply – Number of Sellers

65. Warm Up – See what YOU can do
You will work independently
Draw the Circular Flow of Income
Answer the accompanying questions

66. Let’s Take a Closer Look at Supply and Demand Shifts

67. Analyzing Demand Headlines
Take out your “Analyzing Demand and Supply Headlines” handout
Let’s recall BITER
These practice questions will help you prepare for your quiz tomorrow 

68. Analyzing Supply Headlines
Let’s move to Supply Shifters
Let’s recall STONER
With someone sitting next to you see if you can take on these without me

69. Review What is the difference between stocks, bonds and mutual funds?
Explain what is happening in graphs B and C

70. Answers
Stock – owning a share of a company. Risky form of investment, but can have very high returns
Bond – providing a loan to a company or government for a certain amount of time where you earn interest. Low risk –low return
Mutual Fund – pooling your money with other investors to buy a collection of stocks and bonds. Less risky with medium returns
Graph B – Supply shift: Decrease
Graph C – Demand Shift: Increase