1. Supply and Demand

2. Law of Demand
As the price of a good/service falls, consumers will buy…
MORE
As the price of a good/service rises, consumers will buy…
LESS
A demand curve shows the quantity of a product consumers will buy at each price.
PRICE
Demand Curve
QUANTITY D

3. Law of Supply
As the price of a good/service rises, producers will supply…
MORE
As the price of a good/service falls, producers will supply…
LESS
A supply curve shows the quantity of a product suppliers will sell at each price.
PRICE
Supply Curve
QUANTITY S

4. Equilibrium Price
Price is determined by a compromise between what buyers are willing to pay and sellers are willing to accept for the product.
EQUILIBRIUM PRICE – where supply meets demand
PRICE
Supply and Demand
QUANTITY D
Equilibrium Price  S

5. What if the price is too high/low?
What if a seller sets the price too low?
More will be demanded than supplied  SHORTAGE
How do you fix it?
What if a seller sets the price too high?
More will be supplied than demanded  SURPLUS
PRICE
Supply and Demand
QUANTITY D
SURPLUS
Raise Prices S
SHORTAGE
Lower Prices

6. SUPPLY AND DEMAND SHIFTS
INCREASE….
DECREASE….
RIGHT!
LEFT!

7. Changes in Demand Income Changes
When people have more money, demand goes…
UP (increases)
When people have less money, demand goes…
DOWN (decreases)
PRICE
Demand Curve
QUANTITY D1 D2 D2

8. Changes in Demand 2) Changes in Preference
People like mp3s more than CDs.
Demand for CDs goes…
DOWN (decreases)
Demand for mp3s goes…
UP (increases)
PRICE
Demand Curve
QUANTITY D1 D2 D2

9. Changes in Demand
3) Substitute Goods – goods that can be used in place of other goods
If the price of the original good goes up, demand for the substitute goes…
UP (increases)
If the price of the original good goes down, demand for the substitute goes…
DOWN (decreases)
PRICE
Demand Curve
QUANTITY D1 D2 D2

10. Changes in Demand
4) Complementary Goods – goods used with other goods. You must have one to use the other.
If Xbox prices go up, demand for Xbox games will go…
DOWN (decreases)
If Xbox prices go down, demand for games will go…
UP (increases)
PRICE
Demand Curve
QUANTITY D1 D2 D2

11. Changes in Demand 5) Changes in population
If there are more consumers, demand will go…
UP (increases)
If there are less consumers, demand will go…
DOWN (decreases)
PRICE
Demand Curve
QUANTITY D1 D2 D2

12. Changes in Demand D1 D2 Price went up S1 Quantity went up PRICE

13. Changes in Demand D1 D2 Price went down S1 Quantity went down PRICE

14. Elasticity of Demand
How much will a change in price affect how much people demand the product?
Elastic Goods: When prices change, demand changes
(Ex: candy, games, non-essential items)
Inelastic Goods: When prices change, demand stays about the same
(Ex: water, bread, necessities)
PRICE
QUANTITY D
PRICE
QUANTITY D

15. Changes in Supply Production Costs
When the resources cost more, you will supply…
LESS (decreases)
When the resources cost less, you will supply…
MORE (increases)
PRICE
Demand Curve
QUANTITY S2 S1 S2

16. Changes in Supply 2) New Technology
If there is a new machine that does work faster, supply will go…
UP (increases)
PRICE
Demand Curve
QUANTITY S1 S2

17. Changes in Supply 3) Change in the number of Producers
If more companies start that type of business, supply will go…
UP (increases)
If companies start going out of business, supply will go…
DOWN (decreases)
PRICE
Demand Curve
QUANTITY S2 S1 S2

18. Changes in Supply D1 Price went down Quantity went up S1 S2 PRICE

19. Changes in Supply D1 Price went up S2 S1 Quantity went down PRICE