1. Supply and Demand
Economics Pt. 2, Lesson 1

2. What is Supply?
Supply: the various quantities of a good or service that producers are willing to sell at a price
Law of supply: suppliers will normally offer more for sale at higher prices and less at lower prices
The higher the price of a good the greater the incentive to produce it; profit
Profit: the money a business receives for its products or services over and above its costs
Profits can be used to increase wages, improve the company, or to keep for personal use

3. Factors Affecting Supply
Price is the most significant influence on the quantity supplied of a product
Changes in the cost of resources: when the price of one of the factors of production changes this affects supply; changes the price of production
Productivity: improved productivity allows workers to produce more in the same amount of time thus increasing the supply
Technology: can help stores keep track of inventory and reduce costs
Changes in the cost of cheese can cause the price of a pizza to increase

4. Government and Expectations
Changes in government policy: government regulations create new costs for businesses which affects the supply; car standards
Changes in Taxes: Businesses are able to produce more and sell it for less when taxes are low; tax is an additional cost
Changes in subsidies: government can pay producers to make certain products which increases supply
Expectations: businesses will produce more of the goods and services that they expect consumers will want

5. Challenges for Supply
Change in the number of producers: the larger the number of suppliers, the greater the supply; opposite is also true; flu shots
Price controls; advantages vs. disadvantages
Inelastic supply: goods that are hard to get more or less of based on price; oil, crops for the year
Elastic supply: goods that are easy to produce more or less of depending on price: toys, candy, books

7. What Is Demand?
Demand: desire, willingness, and ability to buy a good or service
For demand to exist: 1- a consumer must want the good or service
2- a consumer must be willing to buy that good or service
3- a consumer must have the resources available to buy it
Law of demand: quantity demanded and price move in opposite directions; as price goes up, demand goes down; as price goes down, demand grows up

8. Factors Affecting Demand
There is individual demand and market demand in our economy; which are business more concerned with
Changes in the number of consumers: the more consumers, the higher the demand; what can cause this?
Changes in consumers’ income: the more money people have the more they can purchase so demand goes up; opposite can also occur
Changes in consumers’ taste: if a good becomes popular the demand and the price increase; examples?

9. Factors Affecting Demand
Changes in consumers’ expectations: if people expect financial trouble or gain they can adjust their demand for goods; expectations about goods can also effect demand
Changes in Substitutes: Demand for a product can be affected by similar products that may be better or cheaper
Changes in Complements: if the price of a complimentary good goes up or down it affects the price of those goods: DVD and DVD players
Elasticity of demand: extend to which a change in price causes a change in quantity demanded: elastic vs. inelastic