1. Laws of Demand

2. Discuss What is a market? In a market who is the consumer?
How does the price of a good affect the consumer?

3. Market
An arrangement that allows buyers and sellers to exchange things
Markets exist because no one is self sufficient and no one produces all we require to satisfy all our needs and wants.

4. Demand
Description
The quantities of a particular good or service consumers are willing and able to buy at different possible prices at a particular time

5. Demand Illustration p.1 sec. 1
As price goes up, quantity demanded goes down
Price D1
Quantity

6. Discuss How does demand and “want” or “desire” differ?
You may want or desire a new car or a closet full of clothes, but you demand these things only when you are willing and able to buy them.

7. Quantity Demand
The quantities of a particular good or service consumers are willing and able to buy at set prices at a particular time

8. Quantity Demand Illustration
Price D2
Quantity

9. Demand Schedule
Price
How much people are going to buy at the various prices.
Ex. The price of pizza
Quantity
$.50
$1.00
$1.50
$2.00
$2.50

10. Law of Demand As price goes up quantity goes down
As price goes down quantity goes up
People buy less of something at higher prices than they do at lower prices.

11. ELASTIC DEMAND: demand that is very sensitive to a change in price
goods that one might stop buying or cut back on as price increased (SUVs, Luxury items)**on a graph this demand curve will be FLAT

12. INELASTIC DEMAND
demand that is not very sensitive to a change in price
goods that you would buy at any price; there are few if any substitutes for these goods.
(milk, gas, prescription drugs) **on a graph this demand curve would be very steep.

13. Illustration of Decrease and Increase in Demand
Decrease in Price
Increase in Price
Price
Price D2 D2 D1 D1
Quantity
Quantity
The less you buy the more you will move to the left!

14. The Demand Curve
The Demand Curve slopes downward to the right because the consumer is willing and able to buy more gasoline at lower prices than at higher prices.

15. Scenario #1
Publix is advertising a sale on hot dog buns. What is the impact on the demand for hot dogs?

16. Scenario #2
Playstation 4, the newest video game console, hits stores. What is the impact on the demand for Xbox 360?

17. Scenario #3
The weatherman forecasts rain for the weekend in Columbus. What is the impact on the demand for umbrellas?

18. Scenario #4
The GA General Assembly increases minimum wage to $15/hour. What is the impact on the demand for clothing?

19. Scenario #5
A snowy blizzard blows through Columbus. What is the impact on the demand for snow boots?

20. Scenario #6
The price of MP3 players decreases dramatically due to new technology. What is the impact on the demand for portable CD players?

21. Scenario #7
Summertime is approaching. What is the impact on the demand for shorts?

22. Scenario #8
The price of hamburgers increases at Publix. What is the impact on the demand for French fries?

23. Changes in Demand

24. Reasons Demand can change
Change in consumer income
Change in tastes and preferences
Change in the price of a substitute good
Change in the price of a complementary good
Change in consumers’ price expectations
Change in number of consumers in the market
Weather

25. What is a Complementary Good?
Complementary Good: Two goods that are usually consumed together (Hot Dogs & buns)

26. What is a Substitute Good?
Substitute Good: An acceptable replacement for a good (Playstation & Xbox)

27. Shift in the Demand Curve
This demand curve has shifted to the right. Quantity demanded is now higher at any given price.
© OnlineTexts.com p. 27

28. People’s Income Increases
Effect on Demand
Demand Increases
(shift right) D1 D2 Q

29. Bad Weather (for product)
Effect on Demand
Demand Decreases
(shift left) P D1 D2 Q

30. Price of Complementary Good Decreases (ex: peanut butter & jelly)
Effect on Demand
Demand Increases
(shift right) D1 D2 Q
Peanut Butter

31. Price of Substitute Good Decreases (ex: Pepsi & Coca-Cola)
Effect on Demand
Demand Decreases
(shift left) D1 D2 Q
Pepsi

32. Complementary vs. Substitute
Can YOU tell the difference????

33. Substitute

34. Complementary

35. Substitute

36. Complementary

37. Substitute

38. Substitute

39. Complementary

40. Elasticity of Demand
How much the quantity demanded will change if the price rises or falls.

41. Supply

42. Discuss Now you are the producer
Think about the business you are creating
Things are now going to reverse

43. Law of Supply As price goes up, quantity Supplied goes up
As price goes down, quantity Supplied goes down
More items will be offered for sale at a higher price than at a lower price

44. Supply
Description
The quantity of goods a producer is willing and able to sell at various prices at a particular time.

45. Supply Schedule
A numerical representation of quantities supplied by a producer at certain prices
Price
Quantity
$.50 1
$1.00 2
$1.50 3
$2.00 4
$2.50 5

46. Supply Curve
The Supply Curve slopes upward and to the right because the producer is willing and able to sell more products at higher prices than at lower prices.

47. Quantity Supplied
The quantity of goods a producer is willing and able to sell at a set price at a particular time. P S1 Q

48. Illustrate an Increase in Supply
Price S1 S2
Quantity

49. Illustrate a Decrease in Supply
Price S2 S1
Quantity

50. Change in Supply

51. Reasons for change in Supply
Change in the cost of productive resources (inputs)
Change in technology/production
Change in profit opportunities of producing other products
Change in producers’ price expectations
Change in number of sellers in the market
Change in the government tax or subsidy
Weather

52. Shift in the Supply Curve
For a given rental price, quantity supplied is now lower than before.
© OnlineTexts.com p. 52

53. Costs of Inputs Decrease
Effect on Supply
Supply Increases
(shift right)
Spending less to run the business
Examples
Land
Labor
Capital P S1 S2 Q

54. Number of Suppliers Increases
Effect on Supply
Supply Increases
(shift right)
Example: Basketballs
Dicks Sporting Goods
Sports Authority
Footlocker P S1 S2 Q

55. Weather is bad for product
Effect on Supply
Supply Decreases
(shift left)
Example
A hurricane during the orange growing season P S1 Q

56. SO… can you apply this knowledge?
1) Together lets decide if the following scenarios are a change in…
Input costs
Number of suppliers
Weather
2) Then decide if it will
Increase supply
Decrease Supply

57. Situation #1
Dick’s Sporting Goods goes out of business. What is the impact on basketballs in Columbus? -number of suppliers changes -Supply Decreases

58. Situation #2
A hurricane destroys the orange groves in Florida. What is the impact on the supply of Orange Juice? -weather changes -Supply Decreases

59. Situation #3
The price of gas decreases. What is the impact of trucking companies? -cost of inputs change -Supply Increase

60. Situation #4
Nike moves their factory from the U.S. to China where workers are paid less. What is the impact on the supply of Nike’s shoes? -change in input costs -Supply Increases

61. Change in Quantity supplied

62. A change in quantity supplied occurs when there is a price change in the specific item being addressed (looked at, graphed) in the supply curve

63. Supply and Demand together

64. Equilibrium: the point at which quantity demanded and quantity supplied are equal

65. Equilibrium
Equilibrium occurs at a price of $3 and a quantity of 30 units.
© OnlineTexts.com p. 65

66. At a point of equilibrium….
the price and quantity are balanced
the market for a good/service is stable

67. Disequilibrium: any price or quantity not at equilibrium

68. Equilibrium After a Demand Shift
The shift in the demand curve moves the market equilibrium from point A to point B, resulting in a higher price and higher quantity.
© OnlineTexts.com p. 68

69. Equilibrium After a Supply Shift
The shift in the supply curve moves the market equilibrium from point A to point B, resulting in a higher price and lower quantity.
© OnlineTexts.com p. 69

70. Price Ceilings & Floors
© OnlineTexts.com p. 70

71. A price ceiling is a legal maximum that can be charged for a good.
Results in a shortage of a product
Common examples include apartment rentals and credit cards interest rates.

72. A price ceiling is set at $2 resulting in a shortage of 20 units.
© OnlineTexts.com p. 72

73. A shortage occurs when quantity demanded exceeds quantity supplied.
A shortage implies the market price is too low.

74. A price ceiling set above the equilibrium is ineffective

75. A price floor is a legal minimum that can be charged for a good.
Results in a surplus of a product
Common examples include soybeans, milk, minimum wage

76. Price Floor
A price floor is set at $4 resulting in a surplus of 20 units.
© OnlineTexts.com p. 76

77. A surplus occurs when quantity supplied exceeds quantity demanded.
A surplus implies the market price is too high.

78. A price floor set below the equilibrium is ineffective

79. Inflation
 a general Rise in prices
There is too much money