1. Supply and Demand Notes
Copy the information in your notes section (Section 2) of your econ notebooks

2. Demand
Consumers’ willingness and ability to buy an item at a given price
Willingness means that buyers must want the item
Ability means that buyers must have the financial resources to afford the item

3. The Law of Demand
The price of an item determines the quantity demanded
The lower the price the higher the quantity demanded
When goods/services are cheap, I tend to buy more
The higher the price the lower the quantity demanded
When goods/services are expensive, I tend to buy less
Therefore, the price of a good/service is inversely related with the quantity demanded

4. 3 Reasons Why the Law of Demand Exists
Income Effect
When things are expensive, money buys less
When things are cheap, money buys more
Substitution Effect
When apples are expensive and their substitutes (pears) are relatively cheap, I buy fewer apples and more pears
Diminishing Marginal Utility
Each additional unit of an item purchased gives less marginal utility (happy points) than the previous unit. Therefore, the only way I will buy more is if the price is lower.
Ex. When I’m hungry, I typically will buy 2 breakfast tacos. The reason I don’t buy a third taco is because the marginal utility of the third taco is less than the price of the taco. But, if the price of the taco is less than the marginal utility of the taco, then I will buy the third taco

5. Demand for Breakfast Tacos
Demand Schedule
Demand for Breakfast Tacos
Price
Quantity
$2.00
$1.50 1
$1.00 2
$0.50 3
Notice that Mr. Mayer is obeying the law of demand. Now that’s making a good choice!!!!

6. Demand for Breakfast Tacos
Demand Curve
Demand for Breakfast Tacos P
Price
Quantity
$2.00
$1.50 1
$1.00 2
$0.50 3
$2.00
$1.50
$1.00
$0.50 D 1 2 3 Q

7. Changes in Demand Increase in Demand Decrease in Demand
More quantity demanded at all prices
Demand Curve shifts 
Decrease in Demand
Less quantity demanded at all prices
Demand Curve shifts 
Know that Price does not change Demand!

8. Factors that cause a change in demand (other than price):
Write at least 3 facts for each.
Consumer Income
Consumer Tastes
Prices of Related Goods
Substitute Goods
Complementary Goods
Change in Expectations
Number of Consumers

9. Elasticity is an important cause-and-effect relationship in economics
Demand elasticity is the extent to which a change in price causes a change in the quantity demanded
Will a change in price cause a relatively larger, a relatively smaller, or a proportional change in quantity demanded?

10. Demand is ELASTIC: a change in price causes a relatively larger change in quantity demanded
Demand is INELASTIC: a change in price causes a relatively smaller change in quantity demanded
Demand is UNIT ELASTIC: a change in price causes a proportional change in quantity demanded

11. What determines demand elasticity?
Can the purchase be delayed?
Yes: tends to be elastic
No: tends to be inelastic
Are adequate substitutes available?
Does the purchase use a large portion of income?

12. Supply Producers willingness and ability to sell a good/service
Supply is not an amount but a behavior

13. The Law of Supply
The price of an item determines the quantity supplied
The lower the price the lower the quantity supplied
When goods/services command a low price, I tend to produce less of them
The higher the price the higher the quantity supplied
When goods/services command a high price, I tend to produce more of them
Therefore, the price of a good/service is directly related with the quantity supplied

14. The Reason for the Law of Supply
The law of increasing marginal cost
It is more costly to produce two than one. Therefore, I must collect a higher price if I am going to produce more.

15. Taco Mucho Bueno’s Supply of Breakfast Tacos
Supply Schedule
Taco Mucho Bueno’s Supply of Breakfast Tacos
Price
Quantity
$2.00 4
$1.50 3
$1.00 2
$0.50 1

16. Supply Curve Taco Mucho Bueno’s Supply of Breakfast Tacos P Price
Quantity
$2.00 4
$1.50 3
$1.00 2
$0.50 1 S
$2.00
$1.50
$1.00
$0.50 1 2 3 4 Q

17. Changes in Supply Increase in Supply Decrease in Supply
More quantity supplied at all prices
Supply Curve shifts 
Decrease in Supply
Less quantity supplied at all prices
Supply Curve shifts 
Know that Price does not change Supply!

18. Factors that cause a change in supply (write 3 facts for each):
Cost of inputs
Productivity
Technology
Taxes and subsidies
Expectations
Government regulations
Number of sellers

19. Supply Elasticity
Measure of the way quantity supplied responds to a change in price
Small increase in price yields large increase in output = ELASTIC
Quantity supplied changes very little = INELASTIC
Change in price caused proportional change in quantity supplied = UNIT ELASTIC

20. Equilibrium When supply = demand, there is equilibrium in the market
Equilibrium creates a single price and quantity for a good/service

21. Disequilibrium
If price occurs at some point where supply and demand are not =, then disequilibrium exists.
If the price is higher than the equilibrium price, then a surplus (Qs>QD) occurs
If the price is lower than the equilibrium price, then a shortage occurs (Qs<QD)

22. Causes of Disequilibrium
Price floor – a minimum price for a good/service or resource determined outside of the market
Ex. Minimum wage
Price ceiling – a maximum price for a good/service or resource determined outside of the market
Ex. Concert tickets sold by Ticket-master