1. Supply & Demand Chapter 2

2. Demand Desire, willingness & ability to buy a product Desire, willingness & ability to buy a product Must Must Want to buy a product Want to buy a product Be able to pay for the product Be able to pay for the product

3. Law of Demand Amount of a good or service consumers are willing & able to buy at different prices Amount of a good or service consumers are willing & able to buy at different prices Price low, more people will buy a product Price low, more people will buy a product Price high, less people will buy a product Price high, less people will buy a product

4. Law of Demand Curve Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 - Goods or Services sold at a certain price - Line on graph is Demand Curve - Label D-1 - Always have price & quantity - Curve goes down left to right Carl’s Custom T-Shirts

5. Demand Shifts Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 Demand Curve Shift to Right D-1 D-2

6. Demand Shifts Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 Demand Curve Shift to Left D-1 D-2

7. Demand Shifts Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 Demand Curve Shift D-1 D-2 D-3

8. Demand Schedule A Chart A Chart Shows amount of a product that people will buy at that price. Shows amount of a product that people will buy at that price. Types Types Individual Individual Market Market

9. Individual Demand Schedule Demand of only one consumer Demand of only one consumer PriceQuantityDemanded $450 $300 $251 $153 $106 $310

10. Market Demand Schedule PriceQuantityDemanded $4550 $3050 $25100 $15300 $10600 $31000 Demand of Everyone Businesses use this chart Predict how much to make for what price Decide quantity of good at a specific price

11. Changes in Demand Income Income Consumer likes & dislikes Consumer likes & dislikes Substitute good & services Substitute good & services Complementary goods Complementary goods

12. Income Money a person makes Money a person makes Increase in income – buy more Increase in income – buy more Decrease in income – buy less Decrease in income – buy less

13. Likes & Dislikes Tastes change Tastes change Technology changes Technology changes Popularity Popularity

14. Substitute Goods or Services Good or service that can take place of another Good or service that can take place of another Interchangeable goods Interchangeable goods Price of one substitute will affect the demand for another Price of one substitute will affect the demand for another Ex: Ex: Margarine for butter Margarine for butter Powdered milk for fresh milk Powdered milk for fresh milk

15. Complementary Goods Goods or services that are used together Goods or services that are used together EX: EX: Peanut Butter & Jelly Peanut Butter & Jelly DVD’s & DVD player DVD’s & DVD player If price of jelly goes up price of peanut butter may go down If price of jelly goes up price of peanut butter may go down Why???? Why????

16. Supply The amount of a good that is available to buy

17. Law of Supply Price of a good or service rises, producer will be willing & able to supply more Price of a good or service rises, producer will be willing & able to supply more Price of a good is higher, a larger quantity of the good will be produced Price of a good is higher, a larger quantity of the good will be produced Price of good is lower, a smaller quantity of good will be produced Price of good is lower, a smaller quantity of good will be produced

18. Law of Supply Curve Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 - Goods or Services sold at a certain price - Line on graph is Supply Curve - Label S-1 - Always have price & quantity -Curve goes up left to right Carl’s Custom T-Shirts

19. Supply Shift Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 - S-1 - S-2 Supply Curve Shift to Right

20. Law of Supply Curve Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 - S-1 - S-2 Supply Shift to Left

21. Law of Supply Curve Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 - S-1 - S-2 - S-3 Supply Shift

22. Supply Schedule Lists quantity of a good that a company will supply at different prices Lists quantity of a good that a company will supply at different prices Types Types Individual Individual Market Market

23. Individual Supply Schedule PriceQuantitySupplied $258 $207 $186 $154 $102 $50 Shows supply of ONE company

24. Market Supply PriceQuantitySupplied $25100 $2095 $1885 $1572 $1050 $534 - Lists quantity of a good that ALL companies will supply at different prices - Have larger numbers of quantities supplied

25. Changes in Supply Income Income Likes & Dislikes Likes & Dislikes Cost of Production Cost of Production Technology Technology Opportunity Cost Opportunity Cost

26. Cost of Production Cost of things Cost of things Natural Resource, capital & labor Natural Resource, capital & labor Increase in Cost of production, decrease in quantity supplied Increase in Cost of production, decrease in quantity supplied

27. Technology Speeds up production Speeds up production More efficient More efficient Less costs Less costs

28. Opportunity Cost Use resources to create different products for more money Use resources to create different products for more money EX: EX: Make custom hats instead of T-shirts Make custom hats instead of T-shirts Make more profit Make more profit Increase supply of hats, decreased supply of T- Shirts Increase supply of hats, decreased supply of T- Shirts

29. Prices Value of a product Value of a product Based on Supply & demand of a product Based on Supply & demand of a product Quantity demanded equals quantity supplied Quantity demanded equals quantity supplied Producers willing to sell at a price consumers are willing buy Producers willing to sell at a price consumers are willing buy

30. Equilibrium Price Price at which the amount demanded equals the amount supplied Price at which the amount demanded equals the amount supplied D-1 D-1 S-1 S-1 0 5 10 15 20 25 30 35 Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 Supply & Demand for Carl’s T-Shirts

31. Surplus Sell above Equilibrium price, not enough buyers Surplus – more goods than buyers Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 Supply & Demand for Carl’s T-Shirts surplus

32. Shortage Sell below Equilibrium price, not enough product Sell below Equilibrium price, not enough product Shortage – more buyers than goods Shortage – more buyers than goods Number of T-shirts bought per semester Price per T-shirt (dollars) 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 Supply & Demand for Carl’s T-Shirts Shortage

33. Market Structures Classification of a market based on the type and amount of competition among companies

34. Market Structures Types Types Perfect competition Perfect competition Monopolistic competition Monopolistic competition Oligopoly Oligopoly Monopoly Monopoly

35. Perfect Competition Simplest market structure Simplest market structure Large number of companies all produce an identical product & sell it for the same price Large number of companies all produce an identical product & sell it for the same price

36. Conditions for Perfect Competition Market made up of many buyers & sellers Market made up of many buyers & sellers Sellers sell identical products Sellers sell identical products Buyers and sellers know a lot about the products Buyers and sellers know a lot about the products Buyers & sellers can enter & leave the market freely Buyers & sellers can enter & leave the market freely

37. Perfect Competition Barriers Barriers Start up Costs Start up Costs Money paid before product reaches consumer Money paid before product reaches consumer Technology Technology Spend a lot of time learning new technology Spend a lot of time learning new technology

38. Monopoly Opposite of Perfect competition Opposite of Perfect competition A single supplier controls a market A single supplier controls a market Only supplier in the market Only supplier in the market Consumers are forced to pay price set by company Consumers are forced to pay price set by company EX: EX: City Water City Water Electric company Electric company

39. Monopolistic Competition Like Perfect competition except products are not identical Like Perfect competition except products are not identical Products are made just a little different Products are made just a little different Want consumers to know the difference between the products Want consumers to know the difference between the products EX: EX: Levi’s & Wrangler Levi’s & Wrangler Pens Pens Nike & Addias Nike & Addias

40. Oligopoly Very large suppliers control the market Very large suppliers control the market One company acts, others will follow One company acts, others will follow Compete through advertising Compete through advertising Company lowers prices, others will lower price Company lowers prices, others will lower price EX: EX: McDonalds, Burger King & Wendy’s McDonalds, Burger King & Wendy’s Coca-Cola & Pepsi Coca-Cola & Pepsi Northwest & American Airline Northwest & American Airline