1. SUPPLY AND DEMAND:
HOW MARKETS WORK

2. MARKETS AND COMPETITION
A market is a group of buyers and sellers of a particular good or service. 4

3. MARKETS AND COMPETITION
Buyers determine demand.
Sellers determine supply. 4

4. DEMAND
Quantity demanded : the amount of a good that buyers are willing and able to purchase.
Law of Demand
The quantity demanded of a good falls when the price of the good rises. $
# Demanded 8

5. Ben’s Demand Schedule 17

6. Ben’s Demand Curve Price of Ice-Cream Cone $3.00 2.50 1. A decrease
in price
...
2.00
1.50
1.00
0.50 1 2 3 4 5 6 7 8 9 10 11 12
Quantity of 2.
...
increases quantity
of cones demanded.
Ice-Cream Cones

7. Change in Quantity Demanded
Movement along the demand curve.
Caused by a change in the price of the product. 19

8. Change in Quantity Demanded
Price of Ice-Cream Cones
A tax that raises the price of ice-cream cones results in a movement along the demand curve. B
$2.00 A
1.00 D 4 8
Quantity of Ice-Cream Cones

9. Changes in
Demand!!!
(Demand Shifters)

10. What is a change in demand?
Any change that alters the quantity demanded at every price.
A shift in the demand curve, either to the left or right. 19

11. Shifts in the Demand Curve
Price of
Ice-Cream
Cone
Increase
in demand
Decrease
in demand D 1 D D 2
Quantity of
Ice-Cream Cones

12. Demand Shifters: T - I - R - E - S - Income of Consumers
Tastes & Preferences of Consumers
Income of Consumers
Related Goods: Substitutes & Complements
Expectations of Future Price Changes
Size of population/Market
I -
R -
E -
S -

13. Tastes & Preferences of Consumers
As people’s tastes change in favor of a good, or an effective advertising campaign has been waged, demand increases (shifts to the right).
As people’s tastes change against a good, or a good loses popularity, demand decreases (shifts to the left). P Q D D1 P Q D1 D

14. Example: When Michael Jordan began endorsing the products, demand for Nike & Gatorade increased.

15. Income of Consumers
As income increases, consumer demand for goods and services increases (shifts to the right).
As income decreases, consumer demand for goods and services decreases (shifts to the left).

16. Example: When Billy got laid off from his job, his demand for gourmet steak dinners decreased.

17. Related Goods: Substitutes
Substitute goods can be easily used in place of one another.
If two goods are SUBSTITUTES, when the price of Good A increases, demand for Good B increases (shifts to the right).
If two goods are SUBSTITUTES, when the price of Good A decreases, demand for Good B decreases (shifts to the left).

18. Example: Demand for Starbucks changes when Caribou alters its prices

19. Related Goods: Complements
Complementary goods are used WITH each other.
If two goods are COMPLEMENTS, when the price of Good A increases, demand for Good B decreases (shifts to the left).
If two goods are COMPLEMENTS, when the price of Good A decreases, demand for Good B increases (shifts to the right).

20. Example: Demand for ketchup changes when hamburger prices fluctuate

21. Substitute OR Complementary?
Cars and Tires
Corn and Beans
DVD Players and DVD’s
Natural Gas and Electricity
Cereal and Milk
Toast and Jam
Sweatshirts and Sweaters

22. Expectations of Future Price Changes
If consumers expect the price of a good to rise in the future, immediate demand increases (shifts to the right).
If consumers expect the price of a good to decrease in the future, immediate demand decreases (shifts to the left).

23. Example: Demand for gas changes throughout the week

24. Size of Population/Market
As the number of consumers in a given market increases, demand increases (shifts to the right).
As the number of consumers in a given market decreases, demand decreases (shifts to the left).

25. Example: Demand for girl scout patches increases when more girls join girl scouts

26. Variables That Influence Buyers

28. Shifts in Demand
A well known athlete who endorses a line of button down shirts is discovered to have been unfaithful to his wife.
Demand Shift:
Left

29. Shifts in Demand
The number of Netflix rentals if movie tickets prices increase to $12.00 per person.
Demand Shift:
Right

30. “Analyzing Demand Headlines” Activity Instructions
May work with your partner.
In this activity, you will work with your partner to analyze a series of newspaper headlines. Based on information in each headline, you will investigate what happens to the demand curve for a related product.

31. Work with your group to analyze headlines that will likely affect demand by following these steps:
Carefully read one of the demand headlines. Determine whether the information will
Shift the entire curve to the left or to the right, or
Not shift the demand curve, but change the quantity demanded along the original curve.

32. Summarize the headline in the corresponding row.
On your worksheet…
Summarize the headline in the corresponding row.
Draw what will likely happen to the demand curve.
Explain what happened to the demand curve & why.
Cite & underline the shifter (TIRES), or explain why the curve did not shift, and whether quantity demanded increased or decreased.
Wages Decline for U.S. Workers
-Demand decreased (shifted left)
-Income of consumers decreased D2

33. Summarize the headline in the corresponding row.
Have your work checked by the teacher. Then repeat the process with a new headline until A-H are completed.
Summarize the headline in the corresponding row.
Draw what will likely happen to the demand curve.
Explain what happened to the demand curve & why.

34. Elasticity OF
DEMAND

35. WHAT WILL CONSUMERS DO WHEN PRICES CHANGE
WHAT WILL CONSUMERS DO WHEN PRICES CHANGE??? How much more will consumers buy if the price falls? How much less will consumers buy if the price rises?

36. ELASTICITY OF DEMAND: Measurement of consumers’ sensitivity to price.
Buyers are responsive to price changes.
INELASTIC:
Buyers are not responsive to price changes.

37. Determinants of Demand Elasticity:
Availability of substitutes
Price relative to income
Necessities vs. Luxuries
Time needed to adjust to a price change

38. Elastic or Inelastic? Sugar New furniture New car Gasoline Food
Encyclopedia
2% Milk
Sailboat
Socks
Aspirin
Diet Coke
Gold Jewelry
Insulin

39. SUPPLY
Quantity supplied is the amount of a good that sellers are willing and able to sell.
Law of Supply
The quantity supplied of a good rises when the price of the good rises. $ #
supplied 25

40. Jerry’s Supply Schedule
Price of Ice cream cone
Qty. of Cones supplied 29

41. Jerry’s Supply Curve Price of Ice-Cream Cone $3.00 2.50 1. An increase
in price
...
2.00
1.50
1.00
0.50 1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream Cones 2.
...
increases quantity of cones.

42. Change in Quantity Supplied
Movement along the supply curve.
Caused by a change in the price of the product. 30

43. Change in Quantity Supplied
Price S C
$3.00
A rise in the price of ice cream cones results in a movement along the supply curve. A
1.00
Quantity of Ice-Cream Cones 1 5 30