1. Supply and Demand
AP Economics

2. Law of Demand (consumers)
As prices increase, the quantity demanded of a good or service will decrease and vice versa
Demand vs. Quantity demand
How much of the
good or service do you want?
Do you want the
good or service?

3. Demand
A consumers willingness and ability to purchase a good or service
Consumers are sensitive to prices and their income
Ex. Ms. Yeomans likes Starbucks lattes

4. Quantity Demand
The AMOUNT a consumer is willing and able to purchase at a particular price
Ex. Ms. Yeomans will purchase 1 $4.75 each. If the price falls to $3.50 she might purchase 2 lattes.

5. Law of Supply (producers)
As prices rise, the quantity supplied will increase and vice versa
Producers are sensitive to prices and costs of production

6. Supply
A producers willingness and ability to supply a good or service
Ex. Jacob is willing to work (supply his labor) for Farmer Smith collecting peaches

7. Quantity Supplied
The AMOUNT a producer is willing and able to supply at a particular price
Ex. At minimum wage, Jacob is willing to supply his labor for 20 hours per week.
If Farmer Smith offers Jacob $9 per hour, he will supply his labor for 30 hours per week.

8. Equilibrium
The price and quantity that are determined by the intersection of supply and demand.
This is the price goods and services will be sold at and the quantity that will be sold.

9. P S Ep
Equilibrium
(market clearing) D Eq Q

10. Determinants of Demand
Changes will cause the demand curve to shift to the left (decrease) and to the right (increase)
I - income
N – number of consumers
S – substitute good prices
E – expectations of future prices
C – complementary good prices
T – Taste and preferences

11. Price of the good itself will not change total demand (will not shift the curve)
It will only cause a change in quantity demand (move along the points on a curve)

12. P S
Increases in
Demand
Ep2 Ep D2 D P
Eq2 Eq

13. P S
Decreases in
Demand Ep D2 D Eq P

14. Determinants of Supply
Changes will cause the supply curve to shift to the left (decrease) and to the right (increase)
R – resource costs
O – opportunities for other profits
T - technology
T – taxes and subsidies
E – expectation of future prices
N – number of sellers

15. P
Increases in
Supply S S2 Ep
Ep2 D P Eq
Eq2

16. S2 P
Decreases in
Supply S
Ep2 Ep D P
Eq2 Eq