1. Supply and Demand

2. Bellringer
What is the law of supply? What is the law of demand?

3. Supply and Demand
The law of supply and demand is that what is supplied (produced) is determined by what is demanded (consumed).
The law of supply states that businesses will produce more products when they can sell them at higher prices and fewer products when the prices are low.
Supply: quantities that producers or sellers are willing and able to produce/sell at various prices.
The law of demand states that buyers will demand a greater quantity of a good when its price is low. As the price rises, the quantity demanded falls.
Demand: quantities that people are willing and able to buy at various prices.
Business owners hope the supply and demand for a product will balance each other.
Quantity demanded = quantity supplied

4. Supply Schedule
The supply schedule is a table representing the quantity intended to sell or produce at a certain price level.
These are assumptions about the seller’s sentiment toward the size of intended production of a good.
These can be plotted on a supply curve.

5. Supply Curve
The supply curve represents the relationship between price and quantity producers are willing to supply at that price.
The curve represents all possible combinations of price and quantity of that market.
Producers supply more at a higher price because of the higher potential revenue.
There is a direct relationship between price and quantity supplied.

6. How supply can change: change in supply
Change in supply means there is an increase or decrease in the amount producers want to supply.
This can be due to a change in the cost of production.
A change in supply can also be due to government taxes or subsidies.

7. Factors that Affect Supply
A change in supply may be caused by market factors EXCEPT price.
Cost of resources increases
Too expensive = less supply; shift curve to the left
Competition/out-selling
Government action: taxation
Government action: subsidy as a reward to produce more
Productivity
Technology

8. Factors that Affect Supply
A change in supply may be caused by market factors EXCEPT price.
Cost of resources increases
Too expensive = less supply; shift curve to the left
Competition/outselling
Less supply; shift curve to the left
Government action: taxation
Shift curve left because less supply
Government action: subsidy as a reward to produce more
Shift curve to the right
Productivity
Greater supply if more productive; shift curve to right
Technology
Greater supply if can make faster; shift to right

9. Factors that affect supply
When shift supply curve to the left
Quantity: decrease in quantity
Price: increase in price
When shift supply curve to the right
Quantity: increase in quantity
Price: decrease in price

10. Change in quantity supplied
A change in the quantity supplied will result from a change in price.
Supply is greater when a price is higher
Elasticity of supply is the responsiveness of producers to the change in price of their goods or services.
Inelastic goods are goods where a shift in prices does not drastically change the supply because it is not something people are willing to go without; necessities.
Ex: water, food, gasoline
Elastic goods are goods where an increase in price was a noticeable impact on consumption; luxury items.
Ex: movie tickets

11. How supply can change: change in quantity supplied
Change in quantity supplied is based upon a change in price.
Change in price does not shift the supply curve.
The same supply curve is used, but there is change in amount supplied at that price.

13. Bellringer: 5/8
What are some factors that cause a change in demand?

14. Demand Schedule
A table representing the quantity intended to purchase a good at a certain price level.
These are assumptions about the buyer's sentiment towards the number of intended purchases at different prices.
The higher the price the less people will demand

15. Demand Curve
The demand curve represents the relationship between the price and quantity demanded at that price.
The curve represents possible relationships between price and demand in that market.
As the price goes up, so does the opportunity cost.
People will naturally avoid buying a product that will force them to forgo the consumption of something else
There is an inverse relationship between price and quantity demanded.

16. How demand can change: change in demand
Change in demand means consumer demand itself increases or decreases.
Change in demand can be caused by consumers leaving/entering the market
It can also be caused by people wanting to buy more or less of a product.
It can also change through new advertisements.

17. Factors that affect demand
A change in demand may be caused by market factors EXCEPT price.
Income level
Personal income: all money received by a household
Disposable income: income left after paying taxes
Increase in income = shift to the right
Change in number of consumers
Consumer expectations/tastes
Advertising

18. Factors that affect demand
A change in demand may be caused by market factors EXCEPT price.
Income level
Personal income: all money received by a household
Disposable income: income left after paying taxes
Change in number of consumers
More consumers = shift to the right
Less consumers = shift to the left
Consumer expectations/tastes
Greater Advertising

19. Factors that affect demand
Price of related goods can cause a change in demand.
Substitute goods: goods used in place of other goods (ex: Pepsi or Coca-Cola)
When the price of a good goes up, demand for the substitute goes up.
Complementary goods: goods that work together to fulfill certain needs (ex: Blu-ray and Blu-ray player)
A good's demand is increased when the price of another good is decreased

20. Factors that affect demand
When shift demand curve to the left
Quantity: decrease in quantity
Price: decrease in price
When shift demand curve to the right
Quantity: increase in quantity
Price: increase in price

21. Change in quantity demanded
A change in the quantity demanded will result from a change in price.
Demand is greater when a price is lower
Price elasticity of demand measures the responsiveness of demand to changes in price for a particular good.
Inelastic goods are goods where a shift in prices does not drastically change the demanded
Elastic goods are goods where an increase in price has a noticeable impact on quantity demanded

22. How demand can change: change in quantity demanded
Change in quantity demanded is based upon change in price.
The price of a good is not a demand shifter, meaning the curve does not shift left or right.
A change in the prices moves us to a new point along the same demand curve.

24. Equilibrium Price
The point of intersection of the supply curve and demand curve is equilibrium.
Equilibrium is the point at which quantity supplied and quantity demanded are the same.
Also called market price.

25. A change in quantity demanded/supplied
A change in the quantity demanded or supplied will result from a change in price.
Demand is greater when a price is lower
Supply is greater when a price is higher
Change in Quantity Demanded: Prices raised or decreased
Change in Quantity Supplied: Supply is reduced or increased beyond producers control = prices raised or decreased

26. Why do prices go up and down?
Inflation
Higher prices
Costs of production increases = increase in price
Deflation
Lower prices
Costs of production decrease = decrease in price
Interest Rate – amount of money paid to a lender to use that lender’s money.
Higher interest rate = consumer save/prices lower
Lower interest rate = consumer spend/higher prices

27. Shift effect on price and quantity
As the supply or demand curve shifts, there will be a change in the equilibrium price and quantity.

28. What happens if prices are too high or low
Surplus: when supply exceeds demand
Too much a product for what people want to buy
Price above equilibrium results in a surplus
Too expensive = less demand
Shortage: when supply falls short of demand
Not enough of a product for what people want to buy
Price below equilibrium price results in a shortage
Cheaper price = greater demand

30. What does the government do to control prices?
Minimum wage: legal minimum amount to pay workers
Provides workers more money
Raises productions costs for producers
Subsidies are an attempt by the government to control behavior of individuals.
Deficit spending: government cuts taxes and spends more to stimulate the economy; subsidizes businesses to increase production
Supply side economics: government cuts taxes on corporations so businesses spend more on production, capital, and labor.
Set price floors and price ceilings.

31. What does government do?
Price floor: government sets minimum price for good or service.
Ex: minimum wage
Price ceiling: government sets maximum price for a good or service.
Ex: rent control