1. Demand and Supply

2. Starter Key Terms Demand Demand Schedule Demand Curve Law of Demand Market Demand Utility Marginal Utility Substitute Complement Demand Elasticity Price Floor Supply Law of Supply Supply Schedule Supply Curve Profit Market Supply Subsidy Supply Elasticity Surplus Equilibrium price Price Ceiling

3. What Is Demand? The desire, willingness and ability to buy a good or service

4. For Demand to Exist:  You must want or need a good or service  You must be willing to buy the good or service  You must have the resources available to buy it

5. Demand Schedule v. Demand Curve  Demand schedule  Table that shows various quantities of a product or service that an individual is willing to buy over a range of possible prices  Individual Demand Chart pg 571   Demand curve   Graph that shows the amount of a product that would be brought at all possible price.   Vertical is price   Horizontal is quantity

6. Law of Demand  The quantity of an item demanded and price move in opposite directions.  INVERSELY RELATED  Price is high then demand will be ?  Price is low then demand will be ?  Typically you will buy more of an item at a lower price.

7. Individual v Market Demand  What you want and are willing to pay and resources to pay for it (individual)   Total of what all consumers want and are willing to pay for it and have resources to pay for it   Companies hope to sell to as many people as possible so this is what they look at

8. Demand Illustrated:  Knowledge of demand is essential to understand how a market economy works  People act in their own best interest  Would you buy a concrete company near the beach today? Why? Or Why not?

9. Diminishing Utility:  Almost everything that we buy provides utility  Utility: pleasure or usefulness or satisfaction we get from using a product  Movie  Candy  This is diminishing marginal utility: our marginal utility tends to go down as more units are consumed of it  Helps explain the demand curve and why it slopes downward

10. Shift in Demand curve  Shift to right: demand increases  Shift to left: demand decreases

11. Change in Demand Market demand can change when more consumers enter the market; when consumers income changes, tastes or styles change, and expectations change and when prices of related goods change. A graph of a market demand curve can show these changes. When demand goes down, people are willing to buy fewer items at all possible prices. In this case, the curve shifts to the left. When demands goes up, the curve shifts to the right. People are willing to buy more of the item at any given price.

12. Change in Demand Continued Competing products are called substitutes because consumers can use one in place of the other. A change in the price of one good causes the demand for its substitute to move in the same direction. Complements are products that are used together. The demand for one moves in the opposite direction as the price of the other.

13. Factors That Affect Demand  Demand for any product is variable over time for several reason and this affects your demand for it.  Change in number of consumers (population)  Change in consumer’s income (recession)  Change in consumer’s taste (preference for)  Change is consumer’s expectations (future)  Change in substitutes (competing products)  Change in complement (complementing products)

14. Elasticity of Demand When prices rise, we know that quantity demanded will go down, but we don’t know by how much. Demand elasticity is the extent to which a change in price causes a change in the quantity demanded for a product. For some goods and services, demand is elastic. Each change in price causes a relatively larger percentage change in quantity demanded. This is, when the price of a product changes a little, the quantity demanded change a lot.

15. Elasticity Continued Demand for a good or service tends to be elastic if it has an attractive substitute. Demand also tends to be elastic when the purchase can be postponed. For other goods and service, demand is inelastic. Price changes have little effect on the quantity demanded. Demand for goods with few or no substitutes trends to be inelastic.

16. Elasticity of Demand  The extent to which a change in price causes a change in the quantity demanded.  Elastic demand:  Change in cost causes a relatively larger percentage change in quantity demanded.  Substitutes  Expensive items have elastic demand  Inelastic demand:  Price change has little effect on demand  Few substitutes

17. What is Supply?

18. WHAT IS SUPPLY? REFERS TO THE VARIOUS QUANTITIES OF A GOOD OR SERVICE THAT PRODUCERS ARE WILLING TO SELL AT ALL POSSIBLE MARKET PRICES

19. LAW OF SUPPLY PRINCIPLE THAT SUPPLIERS WILL NORMALLY OFFER MORE FOR SALE AT A HIGHER PRICE AND LESS FOR SALE AT A LOWER PRICE PRICE AND SUPPLY DIRECTLY RELATED TO EACH OTHER AS PRICE GOES UP SO DOES SUPPY AS PRICE GOES DOWN SO DOES SUPPLY

20. SUPPLY SCHEDULE VS CURVE SUPPLY SCHEDULE NUMERICAL CHART THAT ILLUSTRATES THE PRICE AND WHAT QUANTITY WILL BE SUPPLIED AT THAT PRICE SUPPLY CURVE GRAPH THAT SHOWS THE AMOUNT OF A PRODUCT THAT WOULD BE SUPPLIED AT ALL POSSIBLE PRICES

21. THE PROFIT MOTIVE PROFIT IS THE MONEY A BUSINESS RECEIVES FOR ITS PRODUCTS OR SERVICES OVER AND ABOVE ITS COST TO MAKE IT PROFIT MOTIVE IS THE IDEA THAT BUSINESS WANT TO MAKE A PROFIT THEREFORE THEY SELL TO DO SO

22. GRAPHING MARKET SUPPLY MARKET SUPPLY IS THE COMBINATION OF ALL BUSINESS SUPPLY SCHEDULES THAT PROVIDE THE SAME PRODUCT (TOTAL OF ALL) UPWARD SLOPING JUST LIKE INDIVIDUAL SUPPLY CURVE

23. INFLUENCE OF PRICE ON SUPPLY PRICE: IS THE MOST SIGNIFICANT INFLUENCE ON THE QUANTITY SUPPLIED OF ANY PRODUCT OTHER FACTORS CAN AND DO MOVE THE SUPPLY CURVE ON THE GRAPH TO THE LEFT AND RIGHT ALSO

24. FACTORS THAT AFFECT SUPPLY WHEN SUPPLY GOES DOWN THE SUPPLY CURVE SHIFTS TO THE LEFT WHEN SUPPLY GOES UP THE SUPPLY CURVE SHIFTS TO THE RIGHT –CHANGE IN COST OF RESOURCES –CHANGE IN COST PRODUCTIVITY –CHANGE IN TECHNOLOGY –CHNGE IN GOVERNMENT POLICY –CHANGE IN TAXES –CHANGE IN SUBSIDIES

25. ELASTICITY OF SUPPLY SUPPLY ELASTICITY: MEASURE OF HOW QUANTITY SUPPLIED OF A GOOD OR SERVICE CHANGES IN RESPONSE TO CHANGES IN PRICE INELASTIC? DOES IT OCCUR?

26. MARKETS & PRICES SUPPLY AND DEMAND WORK TOGETHER TO SET PRICES AND IN OUR ECONOMY PRICES FORM BASIS FOR OUR ECONOMY

27. PRICE ADJUSTMENT PROCESS OCCURS WHEN YOU COMBINE SUPPLY AND DEMAND CURVE TO REACH THE EQUILIBRIUM PRICE BUT CAN BE INTERUPTED AND HAVE TO ADJUST ITSELF

28. SURPLUS THE AMOUNT BY WHICH THE QUANTITY SUPPLIED IS HIGHER THAN QUANTITY DEMANDED –PRICE IS USUALLY HIGHER THAT PEOPLE WILL PAY FOR AN ITEM

29. SHORTAGE THE AMOUNT BY WIHC THE QUANTITY DEMANDED IS HIGHER THAN QUANTITY SUPPLIED –PRICE IS USUALLY TOO LOW

30. GOVERNMENT INTERVENTION AND IMPACT OF IT PRICE CEILINGS: MAX PRICE THAT CAN BE CHARGED FOR GOODS AND SERVICES –RENT APARTMENTS/INTEREST RATES PRICE FLOOR: MIN PRICE THAT CAN BE CHARGED FOR GOODS AND SERVICES –MINIMUM WAGE

31. PRICE AS SIGNALS THEY HELP US MAKE DECISIONS AND ANSWER THE 3 QUESTIONS –WHAT –HOW –FOR WHOM

32. ADVANTAGES OF PRICES PRICES ARE NEUTRAL PRICES ARE FLEXIBLE PRICES AND FREEDOM OF CHOICE PRICES ARE FAMILAR