1. Supply and Demand in a Market Economy

2. What is Supply and Demand? Supply = The amount of a good or service that a producer is willing & able to make available at a range of prices Demand = The want, willingness & ability to exchange a good/service I made a delicious pizza! WAHOOO!! WE’LL TAKE IT!!! *All other factors remaining constant!

3. Graphing Supply and Demand Economic charts are always graphed in this manner: Supply Demand D is for down Sup (S = up)

4. Balancing the Budget In order for buyers and sellers to be satisfied with a purchase, a balance must be made. Equilibrium Point = The quantity of a supplied good meets the demand! (both the buyer and seller are satisfied) My goal is to sell my pizza for as much money as people are willing to pay $1 is the perfect price for me! Any more and I’ll go eat something else. Looks like $1 is the perfect price!

5. Graphing Equilibrium Point Equilibrium Supply Point Demand

6. What Happens If… If the price of a good is too LOW, a shortage occurs If the price of a good is too HIGH, a surplus occurs. I should never have charged $50 per pizza…now NOBODY will buy my food and I have all these extra pizzas! Come and get it! Pizza for a nickel! We ALL want pizza since the price is so low! Oh no, I don’t have enough pizza for ALL these guys!

7. Graphing a Shortage Equilibrium Supply Point Demand

8. Graphing a Surplus Equilibrium Supply Point Demand

9. Price Relationships to Know: LAW OF DEMAND = INVERSE RELATIONSHIP LAW OF DEMAND = INVERSE RELATIONSHIP – Price increase = quantity demanded decrease – Price decrease = quantity demanded increase Ex: you go to the store for ice cream & it’s $1 a bar. You buy 10! You go back the next day, it’s $5 a bar….. WOAH! Now, you only buy 2 (your demand is less) LAW OF SUPPLY = DIRECT RELATIONSHIP LAW OF SUPPLY = DIRECT RELATIONSHIP *put your producer hat on!* – Price increase = quantity supplied increases – Price decrease = quantity supplied decreases Ex: I own a pizza place. Every other pizza place in Newtown just went from selling pizza for $10 to selling it for $20. Before people realize that’s RIDICULOUS – I want to stock up on as many pizzas as possible to sell (it’s not going to last). What does “law” mean ?

10. RECOGNIZE THE DIFFERENCE! A SHIFT in demand S S D D S S D D A SHIFT in supply A change in QUANTITY demanded S S D D A change in QUANTITY supplied

11. What Happens If… If there is an INCREASE in demand, the demand curve moves RIGHT. How do we reach a new Equilibrium Point? Equilibrium Supply Point D2 D1

12. What Happens If… If there is a DECREASE in demand, the demand curve moves LEFT. How do we reach a new Equilibrium Point? Equilibrium Supply Point D1 D2 The same is true for the Supply Curve! If there is an INCREASE in supply, the supply curve moves RIGHT. If there is a DECREASE in supply, the supply curve moves LEFT