1. IT’S TIME TO START SHIFTING ALL OVER THE PLACE!
Supply and Demand
IT’S TIME TO START SHIFTING ALL OVER THE PLACE!

2. Demand
We’re going to talk about this concept of demand and how it relates to prices, as well as how it represents what people are willing and able to buy, at what price, and how much they are willing to buy.

3. Understanding Demand Principles
Demand: the amount of a good or service that consumers are willing and able to buy at all prices in a given period
Quantity Demanded: the amount of a good or service that consumers are willing and able to buy at a specific price
Law of Demand: as prices increase, the quantity demanded decreases and vice versa
That willing and able part is really important, because as we’ll talk about in a bit, you can’t be “part” of the demand if you are not able to purchase the product or even willing to purchase the product.
Demand as a whole vs quantity demanded
Demand is kind of general, not specific
quantity demanded ex: Quantity demanded for an $11 CD is 30. Here we are talking about a specific quantity at a specific price.
Law of demand: Can be confusing. So if that $11 CD went up to $14, the quantity demanded would decrease. Not as many people would be willling and able to buy a Cd at that price. But if the price went down to $8, then the quantity demanded would go up. Why? Because it’s cheaper, more people would be willing and able to buy it.

4. Understanding Demand Principles
In order to be part of the demand for a product, two things must be true:
You must be willing to buy the product
You must be able to buy the product
You can’t be part of the market, or demand of a product if you’re not willing to buy the product. Essentially it’s because your opinion doesn’t matter and you have no effect on the demand of the product. You also can’t be part of the demand of a product if you can’t afford to buy the product. If you can’t buy it, then your opinion doesn’t matter.

5. Demand and Price Interactions
Demand can be influenced by price.
Affects the willingness to buy a product at different prices
Demand Schedule: Shows how prices influence demand by listing the quantities of a good that one person will buy at different prices.
Demand Curve: Also shows how prices influence demand by graphing the data listed in a demand schedule. As price changes, the quantity demanded moves up or along the demand curve.
Demand influenced by price
So we just talked about this right? This is basically the law of demand. Price affects how much of something people would be willing and able to buy something
Demand schedule is basically just a table that shows what an individual is willing to buy at different prices. On one side it’ll list the different possible prices of a product. On the other side, it’ll list how much that individual is willing and able to buy at those listed prices. An example is on the next slide.
A demand curve is a graphical representation of what was listed in the demand schedule.

6. Demand Schedule Demand Curve Demand schedule and demand curve
An important thing to remember about the demand curve is that quantity will always be listed where it’s listed and so on.

7. What Causes Changes in Demand
Many things can affect demand (both personal and market demand)
Personal demand: the demand of just one person
Market demand: the sum of all the individual quantities demanded in a market
Personal demand= pretty straightforward
For the most part, when we’re talking about demand, or when you hear economists talking about demand, they’re talking about market demand because market demand is talking about a bunch of different people. When analyzing the demand of a product, in reality, businesses aren’t going to be worried about just one person, because they’re going to need more than one person to stay in business. Market demand helps businesses plan since it tells them how many goods consumers will buy at different prices.

8. Market Demand Schedule
Personal schedule
Personal schedule
Personal schedule
Market Schedule
Personal schedule
Market Demand Schedule
Show market demand schedule

9. What Causes Changes in Demand
Demand Shifters: things that cause a change in demand for a good or service
Changes in income
Changes in preference of products
Changes in prices of products
Complementary: product used with a good
Substitute: different product that does the same job (usually cheaper option)
Changes in the number of consumers in the market
Changes in the expectations of consumers
Changes in income: Increase in income usually increases people’s demand for products and vice versa. What are things you are more willing and able to buy when you’ve got more mula in your pocket?
Changes in preference of products: When something gains popularity, demand for it will go up. What are some examples of things that gained popularity, or were trendy, that people wanted to buy? Sushi as an example.
Changes in prices of products
Complementary: product that is consumed with another product. Tennis balls and tennis rackets. Demand for tennis balls will increase or decrease along with demand for tennis rackets.
Substitute: Burritos and tacos example. If price for burritos goes up, people demand less, but taco price stays the same, consumers might be more willing to buy tacos instead of burritos..
Changes in number of consumers in a market: changes in number of consumers can cause market demand to shift. Ex: When James Bond came out, one of the busiest nights at the restaurant where i worked. this was because the restaurant is situated right next to the movie theater, perfect spot for people wanting to grab dinner or a drink before or after a movie. Can also be seasonal: Demand at Sweet Frog probably decreases during colder months. summer resort towns experience increase in market demand during summer months
Changes in the expectations of consumers: prices don’t have to fall or rise to shift market demand. Consumer expectations of those prices can shift demand. for example, if you find out that the product you’re going to buy will go on sale next week, at that moment, your demand for that product decreases, but will go up next week when the product goes on sale. Black friday example. Say you want to buy a new Samsung smart tv, but it’s expensive. Assume, it’s close to black friday. after seeing how expensive it is, you figure that the price for the tv will go down during black friday.

10. Graphing the Changes in Demand
Changes in demand happen when quantities change at ALL prices.
Demand can increase or decrease
Always affected by outside factors
Demand shift: when the curve moves
NOT affected by price
Demand decrease, demand curve shifts LEFT
Demand increase, demand curve shifts RIGHT

11. Use this information to make a demand curve on a graph

12. Price of Soda
# Bought by Joe
Total Bought
$0.25 15 17 16 48
$0.50 11 10 36
$0.75 8 13 29
$1.00 5 9 7 21
$1.25 2 6
$1.50 1 3
Market Demand Curve
1.50
1.25
1.00
.75
.50
.25 25 30 35 40 45 50 5 10 15 20

13. T-shirt activity You will… Design a t-shirt
Survey your classmates to see how much they would pay for your t-shirt
graph your data and answer the questions

14. Supply
Principles of supply are similar to demand. However, right now we’re looking at the producers’ side of things: How much they are willing and able to sell at a given price.

15. Understanding Supply Principles
Supply: the amount of a good or service that producers are willing and able to sell at all prices in a given period
Quantity Supplied: the amount of a good or service that producers are willing and able to sell at a specific price
Law of Supply: as prices increase, the quantity supplied increases and vice versa
Law of demand: Producers will want to sell more at a higher price and less at a lower price

16. Supply Schedule and Supply Curve
Supply Schedule and Supply Curve are just like demand. They just represent the supply side of things.
Chart shows how many tacos Jasmine is willing and able to sell at each listed price.
Tyler the Taco eater: Jasmine is the one supplying him with tacos. She is the producer, so we’re looking at how much she willing to sell at different prices.

17. Graphing Market Supply
Market Supply: The sum of all producer’s willingness and ability to supply a product.
Add up all 3 shops and create a graph based on the final numbers
Same principle applies like in Market Demand: Economists will usually be talking about market supply.

18. Graph should take the sum of all 3 taco places and place them at the specific prices they want to sell at

19. What Causes Supply to Change?
Supply Shifters: factors that can causes a change in the supply of a good or service (very similar to demand shifters)
Changes in the cost of inputs
Changes in the number of suppliers
Changes in profit opportunities
Changes in technology
Changes in producer expectations
Changes in government policy
DECREASE in supply shifts the supply curve LEFT
INCREASES in supply shifts the supply curve RIGHT
Changes in the cost of inputs: any change in the cost of a factor of prodcution (land, labor, capital). Lower production costs increases profit. Higher profits are an incentive to produce more. Supply curve shifts right since it’s an increase in quantity supplied.
Changes in the number of producers: Producers enter a market when they think there is profit to made. Same principle applies like in change in the number of consumers. An increase in producers in a market causes the supply curve to shift right.
Changes in profit opportunities: If there is money to made elsewhere or with another product, supply curve will change.
Changes in technology: technological advancements can increase productivity, resulting in an increase in supply. Also reduces amount of labor needed to produce a good, thus reduces cost, connects to changes in cost of inputs.
Changes in producer expectations: If a producer expects a change in price for their product, depending on an increase or decrease, producers may either want to take some of their supply and store it for a later time when they expect prices to go up. The inverse is true if producers expect prices to fall in the future, they may want to sell as much as possible to make a profit before price falls.
Changes in government policy: 2 ways: offering subsidies (cash payment aimed at helping a producer to continue to operate). Connect to episode of Parks and Rec with video store. Impose excise tax on a good to reduce supply. It increases production cost.

20. When Demand and Supply Mix
Equilibrium: the point where quantity supplied meets quantity demanded
quantity demanded = quantity supplied
Equilibrium Price: the price at which equilibrium is achieved
aka “market-clearing-price”
Equilibrium: everybody gets what they want
Equilibrium price: market is cleared of all surpluses and shortages

21. Warm up What happens when equilibrium is achieved?
What does the law of supply state?
Does the supply curve have an upward slope or a downward slope?
List one supply shifter.
If supply decreases,which way does the supply curve shift?
Changes in the cost of inputs: any change in the cost of a factor of prodcution (land, labor, capital). Lower production costs increases profit. Higher profits are an incentive to produce more. Supply curve shifts right since it’s an increase in quantity supplied.
Changes in the number of producers: Producers enter a market when they think there is profit to made. Same principle applies like in change in the number of consumers. An increase in producers in a market causes the supply curve to shift right.
Changes in profit opportunities: If there is money to made elsewhere or with another product, supply curve will change.
Changes in technology: technological advancements can increase productivity, resulting in an increase in supply. Also reduces amount of labor needed to produce a good, thus reduces cost, connects to changes in cost of inputs.
Changes in producer expectations: If a producer expects a change in price for their product, depending on an increase or decrease, producers may either want to take some of their supply and store it for a later time when they expect prices to go up. The inverse is true if producers expect prices to fall in the future, they may want to sell as much as possible to make a profit before price falls.
Changes in government policy: 2 ways: offering subsidies (cash payment aimed at helping a producer to continue to operate). Connect to episode of Parks and Rec with video store. Impose excise tax on a good to reduce supply. It increases production cost.

22. Elasticity

23. Elasticity of Supply and Demand
Elasticity: How much stretch the QUANTITY demanded or supplied has when price changes.
Elasticity allows economists to examine how responsive consumers or producers are to price changes.
Inelastic: Barely any response from consumers if price changes. Products are usually necessities.
Elastic: Larger response to change in price. Products are usually wants. Usually go for a cheaper option if favorite product got too expensive.
We have demand elasticity and supply elasticity. Based on our current definition of elasticity, what do you think the definition of demand elasticity is? Supply elasticity?

24. Elasticity of Supply and Demand
Demand elasticity: How and why quantity demanded changes with price.
Elastic goods show a large change in quantity demanded (consumer’s are highly sensitive to price change)
Inelastic goods show a little change (consumers are insensitive to price change)
Supply Elasticity: How and why quantity supplied changes with price.
Elastic goods are flexible and can be produced quickly
Inelastic goods take time and not flexible

25. Graphing Elasticity Graphs can show the elasticity of a product
Steep slopes show inelasticity
Shallow slopes show elasticity
Graph two points to find elasticity:
Initial price and quantity
NEW price and quantity
**Keep in mind that demand is a downward sloping curve and supply is an upward sloping curve**

26. Factors that Affect Demand Elasticity
Availability of substitutes: Products with more substitutes are more elastic. Products with none or very few substitutes are more inelastic.
Price vs. income: Depending on your income, prices may or may not affect you.
Necessity vs. luxury: Necessities are considered inelastic.
Time: Time is needed to adjust to a price change and can greatly affect elasticity.
Gas as more elastic product.
Milk as an example of an inelastic good: Does not have close substitutes, thus people are willing to buy it even if price goes up.
More money you have, the less price can affect you. Some goods may be inelastic or elastic to you depending on how much you make.

27. Factors that Affect Supply Elasticity
Availability of inputs: Difficulty in acquiring inputs can slow down production.
Mobility of inputs: How easily products can moved to where they are needed for production
Storage capacity: Ability to store goods for production. Is the product easy to store? Or is it difficult? Answers to those questions will affect elasticity.
Time: Time is needed to adjust to a price change and can greatly affect elasticity. A product that was previously inelastic can become more elastic as time goes on.

28. Prices
Principles of supply are similar to demand. However, right now we’re looking at the producers’ side of things: How much they are willing and able to sell at a given price.

29. Prices Bring Markets to Balance
Market Price: The price that willing consumers pay to a willing producer for the sale of a good or service.
Set by interactions between consumers and producers
Consumers are only willing to pay a certain price and producers will want to charge a high price
If prices are too low…?
If prices are too high…?
Price is dependent on consumer and producer interactions. These interactions will drive the market price towards equilibrium (balance)

30. What Happens When the Price isn’t “Right”?
Disequilibrium: Prices are wrong, consumers and producers do not agree on a price for a good or service. In other words, quantity demanded no longer equals quantity supplied.
Leads to excess demand or excess supply
Excess Supply – Price is too HIGH
Excess Demand – Quantity was too LOW

31. Excess Demand ---> Shortages
Excess demand occurs when price is low enough to cause a high quantity demanded but producers have not supplied enough of a good or service. This is a shortage.
Demand exceeds supply
To get back to equilibrium, price would need to rise

32. Excess Supply ---> Surplus
Excess surplus occurs when price is HIGH enough to cause a low quantity demanded thus producers are unable to sell their inventory. This is a surplus
Supply exceeds demand
To get back to equilibrium, price would need to go down

33. How Price is Affected by Demand Shift

34. How Price is Affected by Supply Shift

35. What if Both Shift? New equilibrium is found
Can have numerous outcomes

36. What do the Shifts Tell Us?
Changes in prices….
Tells producers how much to produce
Tells producers how much to charge
Shows buyer’s interest (demand) for a product
Prices give incentives---> encourages producers to produce more to make a profit
Allows markets to adjust to changing conditions
Able to respond to global issues
able to use resources efficiently

37. What Happens when the Government is Involved?
The government will get involved when it believes prices are too high or too low.
Government affects prices in 2 ways:
Price Ceilings: setting a MAX price
Price Floor: setting a MINIMUM price
Government interference can create shortages. This can lead to “black markets”
It can be difficult to stop gov’t interference due to political influences from those who it benefits