1. Supply and demand

2. The law of supply and demand
When you add value to a product, you increase demand

3. The law of supply and demand
When demand is high, manufacturers then need to make products in larger quantities
This then reduces the unit cost because fixed costs (ie. Rent) remain the same whether the company makes 5,000 or 50,000 items
Then the company can sell the unit at a lower price in the hopes of then selling MORE units to make more money

4. The hula hoop
Don’t write
Video
In 1958, Wham-O Inc began marketing the Hula Hoop in the US. Sales skyrocketed the first year (+25M sold in first few months and +100M in first year).
In 1994, this video from The Hudsucker Proxy portrays a fictional account for the demand for Hula Hoops as they were introduced to the market

5. Supply and demand
Don’t write
Why does a business owner lower the price of products not selling quickly?
When would a business owner have the incentive to increase the price?
What does a higher price than before communicate to the consumer about the demand for that product?

6. Silly bandz
Don’t write
Today, Silly Bandz (made by Brainchild Products) have taken off in sales since They have gone from shipping 20 boxes a day to over 1,500.
The rise in demand has not yet been accompanied by a rise in price. Instead, they are responding by increasing their production of Silly Bandz
Video
Article

7. Silly bandz
Don’t write
What information is being communicated to the business owner by the $5 price for the Silly Bandz?
What can the business do to ensure that Silly Bandz are allocated to those consumers, which value them the most?

8. demand The desire of buyers for a G or S
Don’t write
The desire of buyers for a G or S
But what determines market demand?

9. The law of demand
As the price of a G or S that consumers are willing and able to buy during a certain time period rises (or falls), the quantity of that G or S demanded falls (or rises)

10. What determines demand?
Income
Expectations
Other goods
Consumers in the market
Other???

11. Inelastic demand
If demand for the product is not affected by a change in price, the product is said to have “inelastic demand”
People will buy them no matter what the price is because they “need” the product
Any examples?

12. The law of supply
As the price of a G or S that producers are willing and able to offer for sale during a certain time period rises (or falls), the quantity of that good falls (or rises)

13. supply
Equilibrium
The price at which the quantity demanded by buyers equals the quantity supplied by the sellers

14. supply Shortage Surplus
Quantity demanded exceeds the quantity supplied
Happens when the price is below the market equilibrium price
Surplus
When the quantity supplied exceeds the quantity demanded
Happens because the price is above the market equilibrium price

15. Inelastic supply
If the supply for a product is not affected by a change in price, it is called “inelastic supply”
If a product is difficult to produce or difficult to produce in mass supply, it will have inelastic supply

16. homework
Click on the following link (use full screen) and answer the questions on the hand out
Could show up on a unit test – so do it!!!