1. ECONOMICS: UNIT 4 Supply and Demand
Staker/Phinizy
(by MR. NOVOTNI)

2. DEMAND DEMAND: desire, ability and willingness to buy a product.
Measured by sales.

3. DEMAND CURVE
DEMAND CURVE: shows the how much consumers will demand at each and every price.
Demand curves always go DOWNWARD
Supply curves always go UPWARD

4. LAW OF DEMAND LAW OF DEMAND: as prices go up demand goes down
As prices go down demand goes up

5. CHANGE IN DEMAND
CHANGE IN DEMAND: when people are willing to buy more or less of a product at the SAME PRICES.
Curve shift to LEFT: decreased demand
Curve shift to RIGHT: increased demand

6. WHY DOES DEMAND CHANGE?
Consumer Income: As income goes up/down, consumers buy more/less of a product.
Consumer Tastes: Advertising, trends, and even seasons can affect demand.
Prices of Related Products: change in the price of related products can change demand.
Ex. Butter vs. Margarine
Population
Consumer Expectations

7. SUBSTITUTION EFFECT
SUBSTITUTION EFFECT: Change in quantity demanded for one product because of a change in the price of another product.
Ex. Butter prices go up, so people will start buying more margarine (a substitute for butter)

8. COMPLEMENTARY GOODS
COMPLEMENTS: related goods where use of one increases the use of the other. (CDs and CD players).
EX - Lower price of CD players means higher demand for CD players and also higher demand for CDs.
EX - Higher CD player prices cause less demand for CDs.

9. SUPPLY Law of Supply: As prices go up quantity supplied goes up
As prices go down quantity supplied also goes down.
(Supply curves go UPWARD because at higher prices, sellers want to sell more)

10. SUPPLY Reasons for Changes in Supply: Cost of inputs * Productivity
Technology
Number of Sellers
Subsidies: gov’t payment to a business to encourage or protect an economic activity
Expectations
Government Regulations *

11. DEMAND ELASTICITY
DEMAND ELASTICITY: extent to which changes in price cause changes in quantity demanded.

12. DEMAND ELASTICITY
Demand is ELASTIC when a small change in price causes a large change in quantity demanded.
Demand is INELASTIC when a given change in price causes a relatively smaller change in quantity demanded.

13. WHAT DETERMINES ELASTICITY?
Is it a NEED or a LUXURY?
luxury – elastic need – inelastic
Are decent substitutes available?
Yes – elastic, No – inelastic
3. Does the purchase use a large portion of income?
Yes – elastic, No - inelastic

14. Specific Market vs. General Market
Exxon Gasoline vs. Gasoline

15. PREDICT THE DEMAND ELASTICITY
1. Salt 9. Cigarettes
2. Toothpicks 10. China and tableware
3. Fresh tomatoes 11. gasoline
4. Movie tickets 12. coffee
5. Automobiles 13. electricity
6. Chevrolet automobiles
7. Housing
8. Physician services

16. SUPPLY AND COST
Fixed Cost – cost a business incurs even if output is 0.
Overhead – total fixed cost
Depreciation – gradual wear and tear on capital goods through use over time.
Variable Cost – costs that change when output changes
Ex – workers, raw materials

17. SUPPLY AND COST
Total Cost of Production = fixed costs + variable costs
Marginal Cost: extra cost incurred when a business produces one additional unit of a product.
How much will it cost you to produce one more unit of your product?

18. Total Revenue: number of units sold X average price per unit
Marginal Revenue: extra revenue made from production and sale of one additional unit of output.
How much money will you make if you produce one more unit of your product?

19. Break-even point: total output a business needs to sell to cover total costs
As long as MC is less than MR, businesses will keep hiring workers.
Maximum profit is reached when MC = MR.